Does the contractual penalty increase the initial value of the fixed asset?
When making transactions with other companies, entrepreneurs more and more often decide on contractual provisions regarding the contractual penalty to be imposed on the contractor. These penalties may occur in the event of improper performance of one of the contractors under the terms of the contract. If a given transaction concerns a fixed asset of the company, e.g. its improvement, the question arises whether the contractual penalty for failure to meet the terms of the contract may increase the value of this fixed asset?
Initial value of the asset
Pursuant to Art. 22g of the Personal Income Tax Act, the initial value of a fixed asset is:
1.in the event of a purchase for consideration - the purchase price thereof,
2.in the case of a partially paid purchase - the purchase price increased by the value of income (the difference between the value of these benefits and the fee paid by the taxpayer),
3.if manufactured on its own - manufacturing cost,
4.in the case of acquisition by inheritance, donation or otherwise free of charge - the market value on the day of acquisition, unless the donation agreement or the free transfer agreement specifies this value in a lower amount,
5.in the case of purchase in the form of an in-kind contribution (in-kind) made to a company that is not a legal person:
- the initial value from which the depreciation was made - if the subject of the contribution was depreciated,
- expenses incurred for the acquisition or production of the subject of the contribution, not included in tax deductible costs in any form - if the subject of the contribution was not depreciated,
- value determined in accordance with Art. 19 - if it is impossible to determine the expenses for the purchase or production of the subject of the contribution by the partner making the contribution, who is a natural person, and the subject of the contribution was not used by the contributor in his business activity, with the exception of intangible assets produced by the partner on his own;
6. in the event of receipt in connection with the liquidation of a legal person, subject to para. 14B, determined by the taxpayer the value of individual fixed assets and intangible assets, but not higher than their market value.
In addition, the initial value of the fixed asset includes, in accordance with point 3 of the above-mentioned of the article, costs related to the purchase of an asset, accrued until the date of putting the fixed asset into service. In particular, these are the costs of:
- transport, loading and unloading,
- insurance on the way,
- assembly, installation and commissioning of computer programs and systems,
- notary, tax and other fees,
- interest, commission,
- customs duty and excise tax on the import of assets - in the case of importing fixed assets.
The purchase price should, however, be reduced by the value added tax. The only exceptions are cases where, in accordance with separate regulations:
- tax on goods and services is not an input tax,
- the taxpayer is not entitled to reduce the amount of tax due by input tax or refund of the tax difference within the meaning of the Act on tax on goods and services.
Pursuant to the regulations, contractual penalties do not increase the initial value of fixed assets. They are not included in the catalog of the above-mentioned costs, which increase the value of these assets. Contractual penalty is a separate performance that arises as a result of failure to comply with the terms of the contract. It is worth explaining what exactly the institution of contractual penalty is.
The definition of a contractual penalty is included in the provisions of the Civil Code. Pursuant to Art. 483, it may be stipulated in the contract that compensation for the damage resulting from non-performance or improper performance of a non-pecuniary obligation will be made by payment of a specified amount (contractual penalty). Moreover, the debtor may not, without the consent of the creditor, be released from the obligation by paying the contractual penalty.
In the event of non-performance or improper performance of the obligation, the contractual penalty is due to the creditor in the amount reserved for this event, regardless of the amount of the damage suffered. Claiming damages exceeding the amount of the reserved penalty is not allowed, unless the parties agreed otherwise. If the obligation has been largely performed, the debtor may demand a reduction in the contractual penalty. The same happens when the contractual penalty is grossly excessive.
In the event of the creditor's delay, the debtor may demand compensation for the resulting damage. He may also submit the subject of the benefit to a court deposit.
Although the contractual penalty does not increase the initial value of the fixed asset, it should be remembered that the person receiving the penalty gives rise to a tax obligation. According to Art. 14 sec. 2 point 4 of the Personal Income Tax Act, it is income that should be taxed. In this case, the tax obligation arises when the payment is actually received.