Can court costs be tax deductible?


Pursuant to the PIT Act, tax deductible costs are costs incurred in order to generate income or to maintain or secure a source of income, except for the costs listed in the category of costs that are not tax costs. The costs incurred in order to obtain revenues are the costs which result or may result in obtaining revenues. In turn, the costs of securing the source of income include those that are necessary to ensure the general conditions for the existence and running of business. Read the article and see if legal fees qualify as business expenses!

Court costs and tax deductible costs

Court costs are not listed in the catalog of costs that are not KUP. Therefore, it should be examined on a case-by-case basis whether such expenses will constitute a cost. In order for a given expense to be considered a tax deductible cost, it must cumulatively (simultaneously) meet the following assumptions:

  • must be incurred in order to achieve income or to maintain or secure a source of income (be rational),
  • cannot be listed in the catalog of non-purchase expenses,
  • must be duly documented.

Court costs in interpretations

In the individual ruling of April 19, 2011, the Director of the Tax Chamber in Katowice, IBPBI / 2 / 423-121 / 11 / AP stated: “(...) despite the fact that the court costs incurred by the Applicant cannot be linked to a specific income, they are nevertheless related to the activities conducted by him and were incurred in order to protect his interests. It should be noted that the contested entries did not previously appear in the register of prohibited clauses. Moreover, as a result of the Court's decision, only some of the above-mentioned the entries were deemed illegal. Due to the above-mentioned expenses may be classified as tax deductible costs. They are indirect costs of the business, deducted on the date they are incurred ".

In the interpretation of the Director of the Tax Chamber in Bydgoszcz of October 23, 2013, file ref. ITPB1 / 415-811b / 12 / AD, it was found that the costs of litigation may be considered as incurred in order to protect the interests of the entrepreneur, because they are related to the conducted business activity and it can be demonstrated that they are justified from an economic point of view.

Moreover, the Director of the Tax Chamber in Poznań, in the interpretation of April 21, 2010, ILPB3 / 423-828 / 08/10-S / DS, stated that: "In a situation where the debtor's actions are aimed at defending the property and securing sources of income, the costs related to specific proceedings before a common court or public administration body borne by the debtor or reimbursed to the opposing party as a result of a lost court or administrative dispute, are the costs of obtaining income, assuming that, for example:

  • there is no evident intentional fault,
  • there is no circumvention of the law,
  • it does not result from the taxpayer's actions that are inconsistent with the principles of social coexistence, - by the debtor in the disputed case;
  • the benefit was awarded only on the basis of the principles of social coexistence;
  • the debtor has not taken any steps aimed at unjustified prolongation of the proceedings;
  • the amount of the claim resulted from the creditor's negligence in claiming the benefit. "

In turn, in the interpretation of 20 July 2011, ref. No. IPPB1 / 415-505 / 11-2 / EC, Director of the Tax Chamber in Warsaw, investigated the situation in which the taxpayer incurred legal costs as a defendant for damages. As regards the classification of the costs of court proceedings as tax deductible costs, he stated: "Undoubtedly, the expenditure incurred by the Applicant on account of the amount adjudged in the judgment cannot be considered as incurred in order to achieve income, because the income will not occur in this case. There is also no reason to qualify it as expenses aimed at preserving or securing the source of income. The costs incurred to maintain the source of income are the costs that have been incurred in order for the income from a given source of income to continue to be obtained and for such a source to continue to exist at all. On the other hand, the costs of securing the source of income should be considered the costs incurred to protect the existing source of income, in a manner that guarantees the safe operation of this source. The essence of this type of costs is their obligatory incurring in order not to allow the loss of the source of income in the future. Nor does the expenditure in question have that character. "

Start a free 30-day trial period with no strings attached!

Accounting of court costs in the system

Court costs are usually booked on the basis of a confirmation of payment (which is, for example, a confirmation of receipt or a bank statement). DOING BUSINESS. In the window that appears, complete the date of issuing the certificate, its value and the name of the expense.

After saving, the CC will be posted in the column 13 of the revenue and expense ledger - Other expenses.