The Tax Authority is fighting against the so-called, fictitious self-employment, treating B2B contracts as a way to avoid taxation. Entering into such contracts with former employers may demand employers to pay outstanding taxes and contributions. The penalized entrepreneurs may try to recover the funds through a legal action against their employees.
Self-employment is also a business activity that benefits both parties
Self-employment is a completely legal form of earning a living in Polish law, perfectly fitting into the idea of economic freedom. For many, it’s the best method of professional activity, e.g., for programmers, freelancers, managers or members of joint-stock company boards. Thanks to such contracts, on the basis of B2B (business-to-business) agreements, they can provide their services to several companies or contractors at once.
Frequently, one of the customers is a former employer of the current sole proprietor. Such a form of cooperation is more profitable for both parties than an employment contract. Instead of a 32-percent income tax from their wages, they can pay a 19-percent flat-rate tax or from 2 to 17 percent lump sum. The others save on lower social security contributions because with B2B contracts, they are exempt from issues such as vacations, time tracking, overtime, and more.
The Head of the National Tax Administration in the refusal to issue a security opinion from June 12, 2024, recognized such a B2B contract between the former employee and the employer as tax evasion.
One of the companies directly asked whether it could terminate its employment relations with its employees, create a new special purpose company and employ them there on B2B contracts.
In accordance with Article 119a § 1 of the Tax Code, unacceptable tax evasion is to undertake activities resulting in achieving tax benefits that conflict with the idea of the tax act, which benefit was at least one of the main objectives of carrying out this activity, and the method of action was artificial.
The head of the Tax Administration pointed out that in the described company’s action, such unacceptable benefit is the lower taxation of employee remunerations. If they remained on employment contracts, after exceeding the threshold of 120,000 PLN of income, the company as a taxpayer would be obliged to collect a 32-percent tax. And on a B2B contract, employees tax themselves only with a 19-percent or even lower tax rate.
What does the Tax Administration’s decision mean for companies? If Article 119a of the Tax Code (the clause against tax evasion) is applied to a given activity, contract or agreement, it does not result in achieving an unacceptable tax benefit. Consequently, the authorities will determine the tax effects of the agreement and establish them as they should be if the ‘appropriate’ activity had been carried out. In practice, the authorities will demand from the employer to pay the outstanding taxes with interests, to which collection he would be obliged if he did not change the employment relations to B2B.
In the comment from July 29, 2024, the Union of Entrepreneurs and Employers pointed out that consequences of such a policy are not beneficial for either party involved in the B2B contract, nor for the state itself. Excessive interference in the freedom to shape legal relations can undermine the foundation of civil law, which is the freedom of contracts. In addition, self-employed people also pay taxes and make social security contributions.
The Union alarmingly notes that such an approach of the authorities may impact a portion of Polish employers and employees, especially in the IT industry, where such forms of cooperation have long since become popular worldwide. The enormous gap a worker falls into after exceeding the income threshold (increase in income tax from 12 percent to 32 percent) has to be eliminated. Repressing attempts to jump over this gap by highly qualified and well-paid employees will not help in attracting the best specialists to the country, nor in preventing their emigration to countries that do not undertake such repressions.
Despite the rightful demands of the Union of Entrepreneurs and Employers, conducting sole proprietorships are still scrutinized by authorities. There have even been proposals for so-called entrepreneur tests, aiming to check whether someone is truly conducting a business activity or only working for a former employer.
Each case should be individually assessed, and entrepreneurs have the possibility to defend themselves in court against the consequences of incorrect qualifications by the authorities. For instance, one can imagine a situation where an entrepreneur finds one large contractor, and the high profitability of the contract makes him abandon cooperation with other clients. And the game is not only about tax obligations. The social security institution may also demand outstanding contributions.
Author: Skarbiec Corporate Services accounting office
Source: https://managerplus.pl/umowy-b2b-na-celowniku-fiskusa-dla-pracodawcow-moze-to-oznaczac-koniecznosc-zaplaty-zaleglych-podatkow-42896
