In the case under consideration, the Supreme Court of the Russian Federation will decide how much a business must pay to the budget if its employment of self-employed citizens was recognized as a cover for the actual hiring of workers. The court will answer the question whether it is possible to reduce the amount of additional personal income tax charged to an entrepreneur by the amount of tax on professional income which the self-employed had previously paid for themselves. 

Earlier arbitration courts decided that it is enough for the business to pay the difference between these amounts, respectively, the same fines are accrued on it. However, the tax authority succeeded in transferring the case to the Economic Collegium of the Supreme Arbitration Court, insisting on the illegality of offsetting these taxes. 

Alexey Stanchin, Head of Tax Compliance practice, commented on the arguments of the parties to the dispute and assessed the approach of the tax authorities in the Kommersant review.

After the introduction of tax on the self-employed in 2019, there were concerns about the possible substitution of labor relations with civil law relations, when employees are registered as self-employed and conclude contracts with them for the performance of work or services. The purpose of the scheme is to apply a lower tax rate and avoid the transfer of compulsory insurance contributions.

The Federal Tax Service of Russia has recently been actively fighting this scheme, as evidenced by recent letters on the signs of substitution of labor relations with the involvement of the self-employed. 

We believe that the position of the lower courts on the obligation to take into account professional income tax paid when making additional tax assessments is legitimate. Double taxation of one income by different taxes contradicts the basic principles of tax legislation. Tax authorities should take into account the actual losses of the budget. 

The position of the tax authority with regard to the penalty under Article 123 of the Tax Code is not without legal logic, but based on the text of the definition, there is a feeling that the tax authority is trying to put forward mutually exclusive things. 

On the one hand, it recognizes that the taxpayer created the scheme in order to reduce its fiscal burden, in which case the self-employed act as a kind of part of the scheme controlled by the taxpayer. On the other hand, the tax authority's position argues that the taxpayers (self-employed) are independent, as they “independently dispose of the funds in the taxpayer's taxpayer's account”, and therefore these amounts do not affect the determination of the amount of fines and additional charges to the taxpayer. Therefore, we hope that the Supreme Court will also pay attention to this inconsistency and take it into account when rendering its decision.