Bad loans can be counted on the costs of revenue of loan institutions


The Regional Administrative Court in Poznań, in its judgment dated May 10, 2017, with the signature of I SA/Po 1544/16, shared the position of a company carrying out business in the field of lending to individuals, and considered that loan institutions, just like banks, could count the amounts of bad consumer credits, granted after October 11, 2015, to revenue costs.

Interpretation of taxpayer

The company filed a complaint to the Regional Administrative Court in Poznań for the individual tax interpretation of the Minister of Finance acting by the authorized body of the Tax Chamber's director in relation to corporate income tax.

Earlier, the applicant asked the tax authority the question:

can a company carrying out business activities in non-bank system, which also is a loan institution within the meaning of the Consumer Credit Act (hereinafter referred to as "CCA") recognize the amounts of due but bad receivables from the loans granted as revenue costs at the moment of writing them down?

According to the applicant, Art. 16 sec. 1 pt. 25 let. b of the Corporate Income Tax Act (hereinafter referred to as the "CIT Act") provides the basis for such recognition. This provision states that liabilities that were written off as bad, with the exception of granted by organizational units, subject to separate laws governing rules of their functioning, to grant credits (loans), - due but bad credits (loans), minus the amount of unpaid interests and the equivalent of reserves for those credits (loans), previously counted to the costs of revenue, cannot be considered as revenue costs.

Interpretation of tax authority

The Director of the Tax Chamber, on behalf of the Minister of Finance, did not recognize the company's interpretation as correct and issued a negative interpretation. In the justification the authority pointed out that loan institutions can not be classified as "organizational units, subject to separate laws governing rules of their functioning, to grant credits (loans)", since neither the Commercial Companies Code nor CCA which consist only the rules governing the granting of consumer credit, cannot be considered as a "separate law governing rules of their functioning" of loan institutions.

Court on the side of the taxpayer

The Regional Administrative Court in Poznań repealed the above interpretation and upheld the complaint of the company stating that:

First of all, CCA Chapter 5a indicates the requirements that an entity must meet to hold the status of a loan institution, which are, among others, the legal form of the entity (LLC or JSC), the amount of share capital (at least PLN 200,000), the source of funds to cover the share capital, the requirements for the members of the bodies of the entity, the confidentiality of bank information, penalties for violation of these requirements, etc. The Court stated that above legal regulations contain the rules of functioning of loan institutions.

Second, the applicability of Art. 16 sec. 1 pt. 25 let. b of the CIT Act to the provided situation also allowed by application of functional interpretation of the provisions of the CCA. The purpose of the amendment of this law, after which the provisions on loan institutions were introduced to its text, was primarily to increase transparency and professionalism in the non-bank consumer credit market. Thus, the differentiation of the position of loan institutions to banks and savings and credit institutions in terms of exercising the right to account bad receivables as revenue costs would be unfounded.

The Court also pointed out that the right to account irrecoverable receivables as revenue costs may be granted to loan institutions only for loans granted after November 15, 2015, i.e. after the entry into force of the Act amending the CCA.

Later, another court in Poland - Regional Administrative Court in Białystok - in its judgment of 6 June 2017 signature. I SA / Bk 238/17 applied the same arguments by repealing the tax interpretation and awarding the costs of court proceedings to the applicant company.

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