Unduly received amounts and operating income

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Each of the entrepreneurs at least once in his business has encountered a situation where his contractor paid him more than he should or by mistake paid twice the amount due for the same invoice. Should this amount be then recognized as income and taxed?

What is your operating income?

Pursuant to Art. 14 sec. 1 of the Personal Income Tax Act, income from activity is considered to be the amounts due, even if they were not actually received, after excluding the value of the returned goods, granted discounts and discounts. 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 VAT due.

Undue amounts and income

As can be seen from the above definition, the revenues from the activity are the amounts due, i.e. the amounts resulting from the relevant contracts, invoices or legal grounds. So, if the amount transferred by the counterparty is an undue payment, then it does not constitute business income. In such a situation, the taxpayer does not include it in the register of income from business activity and does not pay tax on it.

The above position is also presented by the tax authorities, as evidenced by the individual interpretation issued by the Director of the Tax Chamber in Łódź with reference number IPTPB1 / 415-211 / 13-2 / DS of 25 June 2013, where a case was presented in which:

”In February 2010, the applicant received a payment to a bank account from a contractor from Algeria. The payment concerned export receivables from 2009, which the contractor had already settled. He probably paid a second time by mistake. The applicant was not able to refund this payment due to the lack of contact with the contractor, he was not sure about the account number and the existence of the company. It was a new contractor, the transaction was a one-off, and he placed an order for goods by phone. The contractor did not pursue a refund. In this situation, bearing in mind Art. 14 sec. 1c of the Personal Income Tax Act, the Applicant showed the income from the received payment on the day of its receipt, i.e. in February 2010 and in the annual tax return for 2010. ".

The question was therefore asked: "Did the Applicant act correctly in including the payment from the contractor as income from business activity at the time of its receipt?".

The tax authority replied: “Considering the above, it should be stated that the re-payment received from the contractor from Algeria was incorrectly included by the Applicant in the revenue due at the date of its receipt. This payment was in the nature of an undue payment, it was made without any basis, by the contractor who was not obliged to pay it.

Therefore, the Applicant should make in the above-mentioned the scope of the correction of revenues (and thus of the submitted tax return), which should be referred back to the reporting period (year) in which the revenue was originally recorded, so in this case the correction should refer to the tax year 2010 ".