Correction of tax returns before the expiry of the limitation period

The purpose of the correction: the application of more favourable interpretations of regulations, omitted reliefs and deductions. How to prepare for it and what to watch out for? 

Does the topic apply to you?

When running a business:

• you do not follow the changing tax regulations on an ongoing basis,
• learn about a new solution/tax provision, but since it is new, unclear, potentially controversial, you implement the so-called “safe” solutions.

In practice, this means that you interpret the regulations conservatively or do not use a specific solution for fear of a dispute with your tax office.

Sound familiar? In the Polish reality, this is a relatively common practice among entrepreneurs.

See what you can do about it and what to look out for?

Below we will describe just a few examples of when and why it is worth performing the so-called retrospective analysis of tax returns (for more information, see point A below).

Retrospective analysis consists of:

• checking whether the jurisprudence of the courts or the interpretative practice of the tax authorities themselves in certain areas has not changed to be sufficiently uniform and beneficial for you (your company, enterprise);
• analysing whether it could be applied to the tax settlements/ tax returns of a given taxpayer (entrepreneur) either in current periods or by correcting past settlements/tax returns (and apply for a VAT refund or a refund of overpayment of tax);
• quantifying the value of the recoverable VAT refund/ tax overpayment.

IMPORTANT: corrections of tax returns are possible provided that the tax liability for a given period has not become time-barred (limitation period has not lapsed)!! (see more information in point B below)

A. Examples of tax instruments/reliefs/regulations to be applied as part of tax return corrections

1) Inclusion in tax-deductible costs of intangible services previously excluded from tax-deductible costs as a result of the application of Article 15e of the CIT Act¹

The aforementioned provision (Article 15e of the CIT Act) was introduced as part of the Polish Deal. In fact, since 2018, it has limited the possibility of including a number of services, the so-called intangible ones, purchased from foreign related entities as tax-deductible costs. It has been effectively abolished as of 1 January 2022, while maintaining the right of taxpayers to deduct these expenses (excluded from tax-deductible costs during the period of the above-mentioned restrictions) in subsequent tax years.

As tax advisors, we have presented the view from the very beginning that in certain business models, specific intangible services should not be subject to restrictions resulting from Article 15e of the CIT Act, as this is a discriminatory solution and inconsistent with European Union law.

In short, from the perspective of procedural economics, it is more efficient to correct CIT tax returns for non-statute-barred periods in order to recover overpaid CIT.

2) Retroactive application of the tax authority’s position from an individual tax ruling issued to you

It is known that the scope of protection resulting from the received positive tax ruling issued by the Polish tax authorities begins from the date of its delivery to the applicant (taxpayer). Sometimes the waiting time for its issuance lasts for months or even years (in the event of an appeal against the negative tax ruling and its review by an administrative court)*. Therefore, until that time (i.e. receiving a positive tax ruling), taxpayers sometimes apply a more conservative method of taxation of a particular transaction or a less favourable moment of its settlement.

*We have written about the practice of instrumental prolongation of tax proceedings by tax authorities, proceedings for the issuance of a tax ruling in a separate series of articles – here and here.

3) Hypothetical interest on additional contribution to the company’s capital or retained earnings in the company (transferred to supplementary/reserve capital) – included in the company’s tax-deductible costs

It is an institution implemented effectively since 2019 (in Article 15cb of the CIT Act), which was (is) aimed at promoting companies whose shareholders decided to keep their profit in the company, or which recapitalized the companies using their own funds. Meanwhile, we still see that the right to recognize such additional costs is not always used by taxpayers who are entitled to it.

Tax regulations provide for a formula for calculating the above-mentioned hypothetical interest and additional conditions for using this institution. To put it simply, the CIT Act introduces a maximum limit of PLN 250,000 of hypothetical deduction interest in relation to one tax year. The deduction is available:

• in the year of payment of the additional contribution or increase in the supplementary or reserve capital, and
• in the next two consecutive tax years.

Therefore, you (your company) can deduct a total of PLN 750,000 of additional tax-deductible costs over the course of three (not statute-barred) tax years.

B. Limitation of tax liabilities

A time-barred tax liability is one that cannot be challenged by either the taxpayer or the tax authority. Therefore, the taxpayer can no longer submit a correction of the tax return (tax settlement) for the period that has become time-barred.

When a specific tax liability (for a specific period) becomes time-barred results from the provisions of the Tax Ordinance Act (“OP”, including Article 70 of the OP). There are also circumstances that suspend the limitation period (Articles 70a-70e of the OP).

To put it simply, the following will expire by the end of December 2026:

• PIT and CIT tax returns for 2020;
• VAT returns for the period from December 2020 to November 2021.

Important! Retrospective analysis should first concern the years that are at risk of the expiry of the limitation period at the earliest.

What should I do in each case?

• each time verify whether there is a tax risk related to the incorrect method of settling other transactions/economic events in the periods that you want to correct to recover any overpayments in tax(s); whether there is a possibility of limiting them, etc.
• verify the fulfilment of all formal conditions for making corrections to tax returns (tax settlements), etc.
• determine the appropriate procedure for making corrections to tax returns (tax settlements), applying for an overpayment [attention! We have commented on this issue here, because from 1.10.2026 changes have been introduced to the regulations on overpayment]
• check if and when the limitation period of a given tax liability expires (we have written more about the institution of limitation of tax liability in a separate text here)

Authors: Agnieszka Czarnecka, Katarzyna Jaromińska

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1. i.e. the Corporate Income Tax Act ↩︎