Can the lost bid security be a tax cost?
When entering a tender, an entrepreneur must take into account the necessity to pay a deposit as security for the contract. However, courts and tax authorities, in their judgments and interpretations, do not allow the amounts paid as a deposit to be classified as tax deductible costs. This position also applies to the situation of loss - no return - of the deposit.
The bid bond
The terms of payment of the bid bond are regulated in the provisions of the Civil Code. Pursuant to Art. 70 paragraph. 1 of the Code, in the conditions of the auction or tender it is possible to stipulate that the person joining the auction or tender should, under pain of not admitting them, pay the organizer a specified sum or establish an appropriate security for its payment (deposit).
Paragraph 2 of the same article regulates that if a participant of an auction or tender, despite the selection of his offer, refuses to conclude a contract whose validity depends on the fulfillment of specific requirements provided for in the act, the organizer of the auction or tender may keep the collected sum or claim satisfaction from the subject of security. In other cases, the paid security should be returned immediately, and the established security shall expire.
Moreover, if the organizer of the auction or tender evades the conclusion of the contract, the participant whose offer has been selected may request the payment of a double deposit or compensation for the damage.
Thus, the bid bond, as a rule, is returnable. In this sense, it does not constitute tax deductible costs, because the payment made is not a definitive expense and is not intended to generate income. Likewise, the return of the bid security will not be income for the taxpayer in this case.
This position is confirmed by the decision of the Higher Administrative Court in Poznań of September 22, 2011 (file no. I SA / Po 534/11). In the judgment, the court stated that in order for an expense to constitute a tax-deductible cost in business, it must be definitive and may not be returnable. The tender bond is returnable and thus the expense related to its payment is not considered to be related to the expected revenues, or their preservation or security. Therefore, the bid security will never constitute a tax deductible cost.However, the question arises as to whether the same rule applies in the case of a lost bid bond.
Loss of the bid security
The loss of the bid security may take place, inter alia, due to: failure to conclude the contract, change in the situation of the person making the bid bond, inability to conclude the contract or withdrawing from the tender and its loss.
In the event of loss of security, taxpayers are often convinced that the expenses in this respect can be classified as tax deductible costs. Such recognition is justified by the fact that they take part in tenders in order to win it, execute the contract and thus generate income. There is also no provision in the act that would exclude this type of expense from tax deductible costs. The tender guarantee is not included in the group of costs not legally recognized as tax deductible costs, which are listed in art. 23 of the Personal Income Tax Act.
However, in Art. 23 sec. 1 point 54 of the PIT Act, the losses (costs) arising from the loss of prepayments (advances, advances) in connection with the failure to perform the contract were excluded from tax deductible costs. On the basis of this provision, it can be concluded that the loss of a given prepayment (advance payment, deposit) does not constitute tax deductible costs. The terms "prepayment", "advance payment", "deposit" are examples of the names of warranty services. In accordance with the interpretations made, a deposit should also be included in these expenses, even though it was not mentioned in this provision. Such a position was also adopted in the judgment of the Supreme Administrative Court of 21 April 2011 (file reference number II FSK 2199/09). According to the verdict, the bid bond retained due to non-performance of the contract is not a tax deductible cost.
The retention of the bid security is the sole fault of the entrepreneur due to his failure to fulfill certain obligations or resignation from the contract. On the basis of the judgment of the Supreme Administrative Court, it is recognized that if the bid security is retained, it ceases to be a returnable benefit, but the indicated financial burden is not related to the deliberate actions of the taxpayer. Thus, it cannot be assumed that the expense was incurred for the purpose of obtaining income, preserving or securing the source of income and thus it does not constitute a tax cost. Therefore, in a situation where the bid security was retained as a result of a culpable act of the taxpayer, he cannot include the related expenses as tax deductible costs.
The judgment of the Provincial Administrative Court in Poznań of March 21, 2012 (reference number I SA / PO 98/12) states that even deliberate actions of the taxpayer for economic reasons and "failure to exercise (...) due diligence and committing errors, which then resulted in the withholding of the bid security, were deliberate, deliberate actions taken in order to obtain income, the source of which is not a contract concluded after the tendering procedure, but a contract concluded, regardless of the tendering procedure conducted with another entity " it does not deserve to be recognized as a tax deductible cost.
An employee's fault may arise for a number of reasons. Many tax interpretations have been issued, according to which the lost bid bond cannot, under any circumstances, be classified as tax deductible costs. Some of them are worth mentioning.
The Director of the Tax Chamber in Katowice (individual tax ruling of November 4, 2010, no. IBPBI / 1 / 415-750 / 10 / RM) described situations where the bid security was not included in tax costs due to failure to deliver documents. The interpretation presents a case in which the organizer of the tender withheld the tender guarantee because the company did not provide the Polish translation of the certificate confirming the correct cooperation of the offered computers with the operating system.
In practice, there are also situations of abandoning investments. They take place when the entrepreneur, after a thorough analysis of all economic and economic aspects of the project, resigns from further implementation of the project due to the desire to avoid excessive costs. The procedure in such a situation was presented by the Director of the Tax Chamber in Łódź, in the individual interpretation of January 8, 2013 (IPTPB3 / 423-367 / 12-2 / GG)
According to the interpretation, the retention of the bid security in this case is a consequence of the default. The saved amount of the bid security is a substitute satisfaction for the organizer of the tender and excludes further property liability of the tenderer. In this case, the tender guarantee does not constitute tax deductible costs. The effects of paying the deposit are similar to the effects of the down payment, but the payment of the deposit does not exclude the claim for damages.
The director of the Tax Chamber in Katowice in his interpretation presented the problem of the amount of money lost as a result of extortion (individual interpretation of April 29, 2010, no. IBPBI / 1 / 415-112 / 10 / BK). In this case, it is a situation where a taxpayer pays a bid bond in response to a false advertisement about an auction conducted by the trustee. In this situation, due to the fraud, there is no proper tender procedure. The tax authority decided that the taxpayer's fault is the loss of the bid security. He did not exercise due diligence in making the payment in connection with the intention to enter the tender announced in the press. This means that the expense on paying the bid security cannot constitute tax deductible costs for the business activity conducted.
Director of the Tax Chamber in Katowice, in a different individual interpretation - from August 18, 2010. (IBPBI / 2 / 423-774 / 10 / JD) - considered the situation of the company which won the tender for shares in the State Treasury company. However, the company did not pay the remaining amount (the deposit was credited towards the price) required to acquire these shares, as the bank at the last minute refused to grant a loan for this transaction. The amount paid as a deposit is forfeited. The tax authority decided that the amount spent by the company in connection with the planned purchase constitutes a loss of property (related to its loss) resulting from failure to perform the contract. The amount of the bid security paid to the seller, which due to the winning tender has been entered against the selling price, does not constitute a tax deductible cost.
From the presented provisions and interpretations of tax authorities and courts, it is clear that the lost bid security does not constitute tax deductible costs. In case of doubt, the taxpayer may apply for an individual interpretation.