We have previously written about the case of IE Sadykov, in which the taxpayer, in order to overcome the ban on providing services to a former employer, «reassigned» 78 employees from an LLC to an IE as self-employed to perform work. The tax authority reclassified the relations with the self-employed as labor relations and imposed additional insurance contributions and personal income tax. 

In its decision, the Supreme Court of the Russian Federation emphasized that the registration of employees under the guise of the self-employed is an attempt by companies to circumvent legislation and avoid paying taxes. An employer is obliged to pay personal income tax and insurance contributions on behalf of such citizens. At the same time it is impossible to automatically offset the tax on professional income against personal income tax, which the employees have already transferred to the budget as self-employed. TC expert Alexei Stanchin commented on the court's position in the Kommersant review. 

The expert notes that it is premature to assess the conclusions of the Supreme Court of the Russian Federation in this case, as it pointed out the circumstances that the court of first instance should find out: «the awareness of individual taxpayers of their erroneous calculation of Professional Income Tax». This is related to the powers of the court in cassation instance, as the court in this instance cannot assess the factual circumstances of the case. Therefore, the court of first instance will have to deal with this issue, taking into account the position of the Supreme Court of the Russian Federation and on the basis of the evidence presented by the parties, and as a result decide whether it is possible to take into account the professional income tax paid by individuals or not.

We would like to remind you that in the commentary we have already suggested that the Supreme Court of the Russian Federation may accept the arguments of the tax authority with regard to the penalty under Article 123 of the Tax Code, but will have to deal with the issue of the duality of the auditors' position. As it appears from the decision, the court did so by pointing out the need for the tax authority to prove that the controlled self-employed had been informed of the erroneous calculation of the NPA.

Possible risks for businesses

Now it is important to observe the direction in which this practice will develop. There is a risk of negative practice developing, which will lead to a loss of the ability to calculate valid tax liabilities. The inspectors in such cases will be able to include in the protocols the question of whether the person is aware that the amounts reported by him in the NAP were erroneous. In the future, a possible argument will be that the person will be able to recover the tax paid from the budget, knowing about the possible error, which could potentially indicate damage to the budget if the tax authority accepts the calculation.

At the moment, the mere fact of informing is not enough to deny the calculation of valid tax liabilities. The argumentation of the tax authorities in this category of cases is based on the fact that the employer actually organized and substituted labor relations for civil law ones in order to save on insurance contributions and personal income tax. And given that the object of tax control at present are employers-organizations, and not the self-employed, then all the controversial points on the calculation is logical and appropriate to complete the consideration of a single case. In favor of this approach is also the fact that there are no mechanisms of recovery, provided with judicial protection, for the employer-taxpayer on the returned erroneous NPA from the self-employed.

Attention to this practice should be paid to representatives of industries where there is a significant amount of labor costs, such as service companies, construction and transportation companies.