Court fees in company costs - tax settlement!
Court proceedings, regardless of the form in which they are conducted, are always associated with costs that must be incurred, whether for the judicial authorities or for the attorney, if one has been established. When incurring litigation costs, there is a doubt as to whether court fees can be included in company costs?
Court fees in company costs - types and amounts
Depending on the type of case, the fee in the writ proceedings may be fixed, proportionate or basic (Article 11 of the Act on court costs in civil cases):
- a fixed fee is collected in cases concerning non-property rights and in certain cases concerning property rights specified in the above Act, in the same amount regardless of the value of the dispute or the value of the subject of the appeal. The fee may not be lower than PLN 30.00 and higher than PLN 5,000.00 (Article 12 of the Act on court costs in civil cases);
- the proportional fee is collected in property rights cases and amounts to 5% of the value of the subject of the dispute or the subject of the appeal, but not less than PLN 30.00 and not more than PLN 100,000.00;
- the basic fee is collected in cases where the regulations do not provide for a fixed, relative or temporary fee. The basic fee is PLN 30.00 and is the minimum fee that the party is obliged to pay for the document subject to the fee, unless the law provides otherwise. The collection of the basic fee from the letter excludes the collection of another fee.
In the writ proceedings (regulated in Articles 4971–505 of the Code of Civil Procedure), a fee for the claim is charged in the amount of 5% of the value of the dispute, and in cases examined in simplified proceedings - in the amount indicated in Art. 28 points 1-4 of the Act on court costs in civil cases
Pursuant to the general rule in force in income taxes, tax deductible costs are costs incurred in order to generate revenues or to preserve or secure their source, except for costs specified in detail in the Act (Article 15 of the CIT Act and Article 22 of the PIT Act).
Court fees in company costs and the position of tax authorities
In practice, the tax authorities have developed a position according to which:
"(...) the expenses incurred by the claimant (...), in the form of costs related to the pending court proceedings, were intended to protect his legal interests. These are undoubtedly costs related to non-agricultural economic activity, which are a consequence of conducting this activity. Although there is no direct link between incurring these costs and obtaining a specific income, nevertheless, taking into account that the actions taken by the Applicant were dictated by the defense of his interests in connection with unjustified directing of claims by the creditor resulting from improper performance of the contract by him, it should be considered that the costs of court proceedings were related to the conducted economic activity and were aimed at securing the source of income, which is economic activity. Therefore, they may constitute tax deductible costs of the conducted business activity, regardless of the effectiveness of the proceedings in connection with which they arose (...) " - interpretation no.IBPBI / 2 / 423-1634 / 09 / JD of March 23, 2010.
On the other hand, another interpretation indicated that tax deductible costs are, inter alia, the following expenses related to pending legal proceedings:
- costs of legal services provided by law firms,
- translation and interpretation costs,
- travel and accommodation costs.
It was emphasized that the provisions of the Corporate Income Tax Act do not contain any specific regulations regarding recognition of procedural costs as tax deductible costs. These expenses are related to the functioning of the taxpayer, are aimed at protecting his economic interests and are not listed in art. 16 sec. 1 of the Corporate Income Tax Act, therefore the above-mentioned general rules for including expenses as costs should be applied to them. Moreover, it was indicated that it cannot be assumed that the above-mentioned the costs are covered by Art. 16 sec. 1 point 17 of this Act, which states that enforcement costs related to non-performance of obligations are not considered to be tax deductible costs. Since the legislator excluded enforcement costs from tax deductible costs, it is reasonable to say that the costs incurred in another stage of the proceedings (trial costs incurred in the examination proceedings) may constitute tax deductible costs, as long as they meet the conditions set out in Art. 15 sec. 1 above of the Act (see interpretation of the Director of the Tax Chamber in Katowice of March 23, 2010, No. IBPBI / 2 / 423-1634 / 09 / JD).
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Excluding enforcement costs from tax deductible costs
As emphasized above, tax regulations exclude enforcement costs related to non-performance of obligations from tax deductible costs (Article 16 (1) (17) of the CIT Act and Article 23 (1) (14) of the PIT Act). In connection with the above, there is a doubt as to whether the costs of enforcement proceedings can be included in tax deductible costs?
It should be emphasized at the outset that enforcement costs related to default are costs incurred by the debtor. Hence, such costs incurred by the creditor in discharging the obligation cannot be equated to the costs incurred in connection with the default. In other words, there is no legal regulation, both in the CIT and PIT Act, which would require the creditor to exclude from tax costs expenses incurred in connection with the recovery of receivables by him. The standard contained in Art. 16 sec. 1 point 17 of the CIT Act and Art. 23 sec. 1 point 14 of the PIT Act concerns only costs related to default. It therefore relates to the debtor, not the creditor.
In the judgment of 23 June 1999, I SA / Gd 1238/97, the Supreme Administrative Court indicated:
"With regard to the second questioned expense in respect of court (enforcement) costs, it should be stated that the refusal to classify them as tax deductible costs was in breach of both Art. 23 sec. 1 point 14 and art. 22 sec. 1 of the Personal Income Tax Act. From the literal wording of Art. 23 sec. 1 point 14 of the Act on personal income tax (respectively, Article 16 (1) (17) of the Corporate Income Tax Act) shows that this provision applies to debtors and not creditors, as indicated by the reimbursement of "costs ... related to non-performance of obligations" used in the provision. This view is also supported by the interpretation by the Minister of Finance of the analogous content of Art. 16 sec. 1 point 17 of the Corporate Income Tax Act ”.
Expenses incurred by the creditor to recover unpaid receivables from the debtor are intended to preserve and secure the source of income, so the creditor may include the fees incurred by a law firm, court fees, enforcement fees, etc. as tax deductible costs. It should be noted that the outcome of the trial and the subsequent effectiveness of enforcement proceedings have no effect on whether the costs incurred by the creditor, for example legal services, trial costs, and enforcement costs will be a tax deductible cost for him. As it was indicated in one of the letters of the tax authorities:
"In the light of the provisions of Art. 15 sec. 1 and - a contrario - art. 16 sec. 1 point 17 of the Act of February 15, 1992 on corporate income tax, an advance payment towards the costs of enforcement initiated as a result of the debtor's failure to perform the obligations towards the creditor, and due to the bailiff from the creditor on the basis of separate provisions - is the cost of obtaining the creditor's income on the date it is incurred . The reimbursement of the advance payment made as a result of the effective completion of enforcement proceedings, due to the creditor pursuant to Art. 770 of the Code of Civil Procedure, gives him income due to the reimbursement of the advance payment.The income arises when the bailiff's decision on the costs of enforcement becomes final " (MF letter of August 23, 1994, PO 4 / RN-722-635 / 94).
In summary, the entrepreneur has the right to include expenses for court fees in the corporate expenses incurred to protect legal and economic interests.