Invoice correction: correcting revenue and costs. A chance for a „wake-up call”.

Tomasz BEGER
tax advisor, Tax Partner at RSM Poland

As it usually happens with changes introduced into the tax law, on the quiet and through the back door a significant change is made as for the moment of including the effects of the issued (or received) invoice correction in corporate income tax/personal income tax calculation. Why is this moment so crucial?

Just to remind: For a couple of years, administrative courts (including the Supreme Administrative Court[1]) insist that, for corporate income tax purposes, any revenue adjustments, irrespective of their cause (sale discount, bonus, return of goods or a mistake) as well as the scale of the delay when compared to the original transaction, are not considered a separate economic event.

Consequently, all effects of issuing an invoice correction (implicitly meaning the increase in revenue and costs) shall be included retrospectively, in the settlement for the period in which the revenue was initially recognised.

For example, if to the supply of goods that occurred in 2012, in 2015 a taxpayer issues an invoice correction concerning the value of goods, they are obliged to correct their tax return for 2012 (submitted long time ago). Even if the document that constitutes a basis for such correction occurs 3 years later. Those who deal with tax and accounting issues on a regular basis wring their hands over this approach, because it causes a lot of confusion and extra work. Unfortunately, administrative courts remain adamant.

For some time now, tax authorities[2] have been trying to put into effect a similar approach with regard to the buyers who were fortunate to receive the invoice correction that influence the amount of their taxable costs. The authorities claim that the effects of such document should be related to the period in which the tax deductible expense (from the initial invoice) was first recognised and influenced the tax base.

The abovementioned cases constitute one of the most vivid examples of how both administrative courts and tax authorities are remote from the economic reality. Not to mention the lack of stability and consistency of tax law interpretation in the situation when the regulations have not changed (before 2011 all the corrections of revenue and costs were recognised on an ongoing basis and it did not irk anyone).

It seems that the mentioned technical problems which taxpayers must overcome, have been noticed by legislators. The Ministry of Economy has prepared a draft amendment (sent for the first parliamentary reading in the Sejm on 26 May 2015), which is supposed to bring to an end all the debate on a „proper”    recognition of the revenue and cost adjustment date. As I mentioned at the beginning, amendments to the Corporate Income Tax Act and Personal Income Tax Act are being introduced „through the back door” by a new legislation with a non-tax name: Act amending the Act - the Code of Civil Procedure and certain other acts in connection with support amicable dispute resolution. And what is interesting in this Act? Well, in Art. 2, 3 and 4 of the draft, we can find a reference to income taxes and partially, having the sense of de ja vu (since it has already been like this), indication that revenue/costs adjustments are, as a rule, recognised in the period in which the invoice correction was issued.

This rule will not be applicable only when the correction is an aftermath of a mistake or error on the initial invoice. One may feel like saying: „finally!” (quietly adding „but why so late”). I am  a great advocate of this solution. I also hope that the draft amendment will not be put away and kept in someone’s drawer but, despite the summer season and the autumn elections, will be finally adopted by the end of this year (the draft posits that new regulations shall enter into force from 1 January 2016).