Are collection costs tax deductible?


The constantly growing number of debtors has a significant impact on the decrease in financial liquidity of many enterprises. In order to recover their debts, entrepreneurs often turn to debt collection companies, thus incurring the costs of debt collection. In this case, it is worth knowing that on the basis of numerous judgments of the Supreme Administrative Court and tax interpretations, such costs can be deducted by the entrepreneur from the income. Moreover, in a situation where the recovery turns out to be ineffective, the entrepreneur also has the right to deduct its costs from the income, however, the condition is that the actions taken in the course of the recovery proceedings are justified.

Debt collection costs as tax deductible costs - the act

Legal grounds for the possibility of deducting debt collection costs from income should be found in the provisions of the Act of February 15, 1992 on corporate income tax (CIT) and the Act of July 26, 1991 on personal income tax (PIT). The analysis of the provisions of the above-mentioned normative acts shows that the definition of tax deductible costs includes, among others, costs that the entrepreneur incurs to achieve income or to preserve or secure the source of income. However, in order to be able to include an expense in the tax deductible cost, it is necessary to demonstrate the relationship between the expense incurred and the activity conducted, and it is very important that this relationship is direct (although in some cases the existence of the so-called potential relationship is permissible).

Debt collection costs as tax deductible costs - the position of the Minister of Finance

When considering the disputes arising in the doctrine on the basis of the discussed topic, it is worth paying attention to the letter of the Ministry of Finance of March 11, 2004 (reference number PB3-530 / 8214-56 / HR / 04) in which the Minister of Finance clearly stated, referring to the judgment NSA that expenses related to the collection of the taxpayer's receivables are tax deductible costs also when the collection was conducted by an entity other than a court bailiff.

Another issue is the methods of determining remuneration used by debt collection companies. Usually these are remuneration in the form of a commission charged on receivables, it is worth remembering that such a commission can also be classified as tax costs and thus the entrepreneur can deduct it from his income. Nevertheless, it should be borne in mind that for evidence purposes it is most sensible to keep all documentation of the recovery process.