One of the support instruments for entrepreneurs introduced by the legislator under the Act of 31 March 2020 amending the Act on special solutions related to the prevention and eradication of COVID-19, other infectious diseases and crisis situations caused by them, as well as some other acts (hereinafter: the Act on the Anti-Crisis Shield) it is possible to retrospectively tax loss settlement.
In accordance with the provisions of the Anti-Crisis Shield Act, CIT taxpayers who:
- suffered a loss in the tax year that began before January 1, 2020 and will end after December 31, 2019, or began after December 31, 2019 and before January 1, 2021, and
- obtained in the tax year referred to in point 1, revenues at least 50% lower than the revenues obtained in the tax year immediately preceding the first tax year referred to in point 1
- they may reduce once by the amount of this loss, but not more than by the amount of PLN 5,000,000, income obtained in the tax year immediately preceding the tax year referred to in point 1.
The provision seems fairly clear and makes the use of assistance conditional upon the cumulative fulfillment of the above-mentioned conditions.
XYZ sp. z o.o. operates in the hotel industry. The company had tax revenue in 2019 in the amount of PLN 50,000,000 and income in the amount of PLN 15,000,000. The company paid tax for 2019 in the amount of PLN 2,850,000. Due to the nature of its operations, the Company suffered the negative consequences of the COVID 19 spread. In 2020, it already showed only PLN 4,000,000 in revenue and a loss of PLN 6,000,000. The company is entitled to retroactively correct the CIT-8 statement, in which it will account for PLN 5,000,000 of loss incurred in 2020. The remaining PLN 1,000,000 may be settled in subsequent years, on general terms.
In turn, in relation to PIT taxpayers, the Act provides that if:
- in 2020 they incurred a loss on non-agricultural economic activity and
- obtained in 2020 total revenues from non-agricultural economic activity by at least 50% lower than the total revenues obtained in 2019 from this activity
- they may reduce once by the amount of this loss, but not more than by the amount of PLN 5,000,000, respectively, the income or income obtained in 2019 from non-agricultural economic activity.
The Act further specifies that total revenues means the sum of revenues taken into account when calculating the tax pursuant to Art. 27 section 1 (the so-called tax scale) and art. 30c (flat tax) and a lump sum on recorded revenues.
Therefore, if all of the above conditions are met, the taxpayer will be able (this is the right, not an obligation) to deduct a one-off tax loss of no more than PLN 5,000,000 from income /revenue obtained in 2019.
Importantly, the loss can be deducted only as part of the same activity in which it was incurred. By default, losses cannot be deducted by lump sum payers and those using a tax card.
Mr. Jan Kowalski is an entrepreneur and runs his own company with photocopying services and large format prints. Mr. Jan settles on general principles. In 2019, he earned income in the amount of PLN 250,000. In 2020, he obtained a tax loss of PLN 200,000. In 2020, its revenues amounted to PLN 40,000. Mr. Jan will be able to settle back the loss incurred in full (PLN 200,000) by submitting a correction to the PIT-36 declaration.
The introduced regulations should be assessed as a positive principle. They will help overcome the lack of financial liquidity of entrepreneurs during the upcoming economic crisis caused by the COVID 19 epidemic. However, reducing revenues (income) by as much as 50% is for some industries a significant limitation of obtaining such assistance. This aspect raises doubts as to the rational action of the legislator. It is wondering why, therefore, enterprises that will also suffer a dramatic drop in their revenues, e.g. at the level of 30 – 40%, will no longer be entitled to this type of assistance from the State.
Legal basis: art. 4 (added point 52k in the Act of 26 July 1991 on personal income tax (Journal of Laws of 2019, item 1387, as amended) and Article 6 (added point 38f in the Act of 15 February 1992 on corporate income tax (Journal of Laws of 2019, item 865, as amended) of the Anti-Crisis Shield Act.