Tax deductibility of contractual penalties for delay in Poland – favourable ruling by the Head of the National Revenue Administration (KAS)

A contractual penalty for delay may be tax-deductible in Poland if its actual basis does not fall within statutory exclusions. On 13 March 2026, the Head of the Polish National Revenue Administration (KAS) accepted the deduction of a PLN 80,677.96 penalty for delayed warranty inspections, paid statutory interest and PLN 9,451 in court costs with related interest. The ruling applies to the specific facts and does not make every delay penalty deductible.

When can a contractual penalty for delay be tax-deductible in Poland?

The case concerned a company supplying, installing and commissioning an Uninterruptible Power Supply (UPS) system. The main work was accepted without reservations. The dispute arose later, during the warranty period.

The company considered inspections during the 60-month warranty to be separate paid services. The customer argued they were already included in the lump-sum remuneration. The court agreed with the customer, and the delayed inspections triggered the contractual penalty.

The contract provided for 0.02% of the gross contract value per commenced day of delay. The total penalty reached PLN 80,677.96. The company also paid statutory interest and PLN 9,451 in court costs, together with interest on those costs.

Why does the distinction between defects and delay matter?

The company relied on Articles 15(1) and 16(1)(22) of the Polish Corporate Income Tax (CIT) Act. Article 16(1)(22) excludes penalties and damages relating to defects, delayed delivery of defect-free goods and delayed defect removal.

Here, the penalty did not concern defective performance or delayed defect removal. The UPS system had been accepted without reservations, while the charge resulted from a delay in performing separate warranty obligations. The Head of KAS accepted the company’s position but did not provide separate legal reasoning.

What does the ruling mean for businesses in Poland?

For tax treatment, the actual contractual reason for the penalty is decisive. A review should cover:

• the contractual clause and the precise breach,
• whether the underlying performance was defective,
• whether the penalty concerned defects, defect removal or another obligation,
• the connection between the expense and business activity,
• whether interest was actually paid,
• documentation of the contract, acceptance and court proceedings.

The company initially treated the penalty as NKUP, a non-tax-deductible cost, while recognising paid interest and court costs as KUP, tax-deductible costs. The amended ruling may justify reassessing similar classifications, but not automatic reclassification.

The favourable direction was also reflected in rulings dated 30 July 2026 and 6 August 2026 concerning delays unrelated to defective performance. Even so, each case requires its own assessment. The ruling of 13 March 2026, reference 0114-KDIP2-2.4010.599.2025.3.RK, protects only the taxpayer and the facts presented in the application.

Read the full article here: Tax deductibility of contractual penalties for delay in Poland – favourable ruling by the Head of the National Revenue Administration (KAS).