Contractual penalties and damages are often an element of dispute with tax authorities. The legitimacy of recognizing them in tax-deductible costs is repeatedly questioned. An example of this type of compensation is compensation paid by transport companies/carriers for the loss of cargo caused by theft. Can such compensation be included in tax-deductible costs?
In accordance with Article 16 sec. 1 point 22 of the Polish CIT Act and Article 23 sec. 1 point 19 of the Polish PIT Act, the legislator prevents the inclusion in tax-deductible costs of expenses incurred for the payment of contractual penalties and damages for defects in the goods delivered, works and services performed, as well as delays in the delivery of goods free of defects or delays in the removal of defects in goods or works and services performed.
In other words, the legislator excludes contractual penalties and damages from tax-deductible costs that are related to the defective performance or delay in removing defects.
Nevertheless, what is important, as emphasized by the Supreme Administrative Court in its judgment of 21 August 2019 (file reference number II FSK 3067/17), the exclusion applies only to those penalties and damages that are explicitly listed in the provision. Other contractual penalties may constitute a tax-deductible expense provided that the general statutory conditions are met.
Thus, as the Supreme Administrative Court emphasizes in its judgment of 4 April 2012 (file reference number II FSK 1770/10), “contractual penalties and damages paid on grounds other than those specified in Article 16 sec. 1 point 22 of the Tax Act, as a rule, if they were related to revenue or aimed at preserving or securing a source of revenue, will constitute a tax-deductible expense“.
Compensation that often arouses controversy is compensation paid to contractors by carriers, transport companies, for the loss of cargo as a result of theft. This topic is sometimes interpreted differently by tax authorities, but in our opinion, in principle, such compensation can be included in tax-deductible costs, as it does not directly fit into the statutory exemption.
The above is confirmed, m.in, in the individual ruling of the Director of the National Tax Information of 28 May 2019 (file reference number IPPB3/423-1071/14-3/S/19/MS), where the situation of loss of cargo due to theft and compensation paid was directly referred to. The authority made it possible to include such an expense in tax-deductible costs. Similarly, it was indicated in the judgment of the Supreme Administrative Court of 7 August 2025 (file reference number II FSK 1478/22), where it is specified that “the hypothesis of Article 16(1)(22) of the Tax Act covers only damages for defective performance of the obligation, while it does not include losses resulting from non-performance of the obligation, e.g. due to the loss of the consignment through no fault of the doubt, including those caused by theft.”
By the way, it should be emphasized that it is important for the taxpayer to have arguments indicating that the loss of goods as a result of theft was not caused by his fault. For example, in the individual ruling of the Director of the National Tax Information of 5 October 2017 (file reference number 0114-KDIP3-1.4011.233.2017.2.AM) it was determined that: “Since the insurer did not pay compensation considering that the Company did not comply with the rules of due diligence, the Authority cannot assume that the expense in question was reasonable and met the conditions referred to in Article 22(1) of the Act.”
To sum up, in the author’s opinion:
- compensation for the loss of goods caused by non-culpable theft may be included in tax-deductible costs;
- A possible inability to include it in tax-deductible costs could occur if it was established that the theft in question occurred as a result of failure to exercise due diligence during the performance of the transport service.
