The date on which the income arises when the services are rendered in stages


Entrepreneurs providing services often carry out work in stages (in particular, this applies to construction services). The question then arises when to recognize the revenue. The regulations in this matter do not contain clear regulations, which leads to disputes between taxpayers and tax authorities.

Generation of income

The concept of business income has been defined in Art. 14 sec. 1 of the PIT Act. This provision stipulates that the amounts due, even if they have not been actually received, are considered as income from non-agricultural economic activity, after excluding the value of the returned goods, granted discounts and discounts.

Importantly, in the case of taxpayers selling goods and services subject to tax on goods and services, the revenue from this sale is considered to be revenue less the due tax on goods and services. This means that, as a rule, the revenue is the net amount resulting from the invoice documenting the sale of goods or the performance of a service.

From the definition of income from economic activity, it follows that the taxpayer is obliged to add to the income from economic activity not only the amounts actually received resulting from the performance of concluded contracts, but also amounts determined by the legislator as due, i.e. those which, although not received, are already paid to the taxpayer. belong.

Moreover, this is the case even if the payment under this contract, although it has become due to the taxpayer, will never actually take place. This means that revenue will also arise when the buyer of the goods or services is delayed with payment, and also when the taxpayer postpones the payment deadline or refrains from receiving the payment at all.

At the same time, it should be remembered that the receipt of cash on an advance payment basis, i.e. before the actual delivery of goods and services, is not taxed. It is assumed that the income is a definitive contribution.

The date on which the income was generated

The general rule regarding the determination of the moment when income from economic activity arises is set out in the PIT Act in Art. 14 sec. 1c of the act. It stipulates that the date on which the revenue arises takes place on the day the item is released, the property right is sold or the service is provided or the service is partially performed, not later than on:

  • issuing an invoice or

  • payment of receivables.

It follows from the above that the date when the income from business activity arose was related to the date of delivery of the item (including goods) or the date of the service, but it cannot be later than the date of invoice or payment of the amount due.

The moment of performance of the services

It is assumed that the moment of performance of the service is determined on the basis of documents confirming their acceptance and performance. One of such documents may be the handover protocol, in which the investor, among others, confirms the performance of the previously agreed work by the contractor.

If the contracts for the provision of services contain provisions regarding the method of investment implementation, work schedule and acceptance conditions for individual stages of the works performed, and the contract indicates that the investment settlement will take place at certain stages, the performance of which will be confirmed by a delivery and acceptance protocol, then the protocol should be considered a document confirming partial performance of the service. As a consequence, the confirmation of the service performance will determine the moment of obtaining revenue.

If, on the other hand, the contract stipulates that the acceptance and settlement of the completed works will take place after the completion of the overall construction investment, without "partial" acceptance and settlements for individual stages of the works, then the revenue will arise at the time of complete completion and settlement of the investment, no later than on the date of invoice or payment of receivables.

Such a position was confirmed by the Director of the National Tax Information in the individual ruling of August 29, 2017, file ref. 0115-KDIT3.4011.194.2017.1.WM, in which we can read:

"(...) the Applicant's production of a machine for the production of expanded metal will be phased, and thus the Applicant will partially provide the service. The parties to the contract will also agree on payments for the various stages of the service provided by the Applicant. In addition, the contract will not provide for the possibility of reimbursement of the amounts (payments) paid by the contractor to the Applicant for the performance of individual stages of the production of a specialized machine. The contract will contain provisions under which the received payments can be assigned to one of the 3 stages of work on the construction of a machine for the production of expanded metal.

In the light of the above, the payments made by the ordering party relating to the individual stages of the machine for the production of expanded metal, will constitute for the Applicant tax revenue on the date of their settlement. Since the concluded contract will not provide for the possibility of their return, it should be assumed that the payments due to the Applicant will be permanent, definitive and unconditional. Therefore, they will not be advances or prepayments within the meaning of Art. 14 sec. 3 point 1 of the Personal Income Tax Act, but with due income within the meaning of Art. 14 sec. 1 of this act (...) ”.

Example 1.

The entrepreneur performs construction services in 3 stages. After each stage and acceptance by the investor, an invoice is issued. In such a situation, the moment of completing each stage will determine the moment of revenue generation.