On 15.02.2021. Minister of Finance, Funds and Regional Policy ("MF") issued general interpretation (reference: DD5.8201.11.2020) "on the principles of determining the amount of deductible expenses on the disposal of own receivables under a factoring agreement" (for both CIT and PIT purposes). This is because the KAS authorities have for several years been issuing individual interpretations that are often divergent in their content.
# Problem background
Sometimes doubts arise as to how PIT/CIT should be accounted for on the part of the factor. If he credited an invoice to his counterparty as revenue due, and then ceded (sold) the receivable from that invoice to the factor, does he have to "double" report revenue and deductible expenses ("BUY") in CIT/PIT? In this case, how to understand the BUI itself, and in particular - to recognize it in the net or gross amount (i.e. in the full amount including VAT)?
# Separate business events
The MF stated that the paid disposal by an income taxpayer (factor) of a receivable arising from a sale of goods or services previously made by such taxpayer to a third party (debtor/receiver) constitutes an economic operation separate from the indicated sale of goods or services, triggering income tax consequences on the part of the seller of the receivable (factor) in the form of the occurrence of income and a TIN.
# BUY as gross face value of receivables
So far, the authorities have stated that the value of the net receivables (without the VAT amount) can be considered as a BUI on the disposal (assignment) of one's own receivables, or that if there was no loss on the part of the factor (because the factor purchased 100% of the gross receivables), the factor cannot count the expenses as a BUI at all. After all, the factor sells the receivable for a price lower than its nominal value (due to the remuneration occurring), which from the tax side can be evaluated in the category of economic loss.
The MF clarified that The BUI is the nominal value of the disposed receivable on a gross basis (i.e., with the amount of VAT included in the value of the receivable). A factor who disposes of a receivable for 100 % of its nominal value will be able to recognize as a BUI the entire amount received, including VAT. However, BUY will not the loss that may arise from such a transaction, that is, the difference between the "gross" value of the claim and the amount of income from the sale (assignment) of this claim.
# Additional MF comments
In addition, the MF indicated that the factoring company will be able to include in the BUI the payments made to the factor salary, for services performed by this entity for the factor, also in the form of a deduction from the amount paid to the factor.
# Interpretation Benefits
Thanks to the interpretation, some previous inconsistency in interpretation has been removed leading to a unification of positions. This, in turn, should encourage the financial/accounting departments of companies to use factoring, especially when there was previously a concern precisely of a tax/accounting nature in this regard.
