Self-employment is a popular form of entrepreneurial cooperation. It offers benefits both to the contractor, who is not required to pay social security contributions or income tax advances, and to the contractor, who can choose a more favorable taxation method and deduct goods and services purchased for work as tax-deductible expenses. This was the basis on which the Head of the National Tax Administration relied when refusing to issue a protective opinion.
The application was submitted by a company intending to establish a subsidiary. The newly established company would enter into business-to-business agreements with individuals currently employed by the applicant under employment contracts. The authority deemed this to constitute tax avoidance.
In justifying the refusal to issue a protective tax opinion, the Head of the National Tax Administration (KAS) pointed out that an employee establishing a business cannot immediately tax their income (revenue) with a flat-rate or lump-sum tax if they provide services to a former employer. However, establishing a company that is fully dependent on the previous employer formally allows for taxation in these forms. However, fictitious self-employment can occur, i.e., a situation in which the taxpayer establishes a business but actually provides services only for a single entity – a subsidiary of the applicant – and performs duties (often substantively identical to the services provided under an employment relationship) in a manner characteristic of an employment relationship (under the direction of the principal, at a time and place designated by the principal). Therefore, the formal and legal aspects of the legal relationship between the employer and the employee will change, which may not create economic risk for the self-employed person or increase their liability. In reality, the provision of services would still take place under conditions similar to an employment relationship, rather than under the conditions characteristic of an actual business activity.
The head of the National Revenue Administration was not convinced by arguments, including that this action would increase responsibility for the tasks performed and increase the retention rate of employees who would otherwise leave for B2B contracts with competitors.
This is consistent with the general trend against B2B contracts. The Council of Europe is working on a directive that would restrict the possibility of concluding such contracts. One of its proposals is to presume the existence of an employment relationship for self-employed workers if they fail the "employee test." This test would consist of five criteria, and if two of them are met, self-employment would be considered bogus.
In this context, it's also worth mentioning the incident in Spain a year and a half ago, where Glovo was fined €32.9 million for working with bogus self-employed drivers. In addition to the fine, the company was ordered to pay €19 million in outstanding social security contributions.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of July 5, 2024
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