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27
May 2022
If you have not been able to get acquainted with Instruction for applying the Independent Contractor Test from the Tax Administration, we found the following text useful for you, since the Instruction has been (un)expectedly published on as much as 90 pages. Nevertheless, there’s no room for panic, as the Instruction abounds in examples and is written in a plain and legible language, which is what everyone has hoped for. The aim is to provide specific guidelines to tax inspectors while conducting tax audits, as well as to guide entrepreneurs and clients on what kind of behavior could cause failure of the test.
The following is an example from the Instruction that illustrates how the criteria in the Independent Contractor Test is met in practice.
EXAMPLE FROM THE INSTRUCTION:
Company A, whose business activity is computer programming and employs 65 people, hires an entrepreneur under a Software Development Service Agreement. The Agreement was concluded for a period of 12 months. Company A has been paying the entrepreneur according to the invoices issued and did not calculate taxes on other income and contributions for pension and disability insurance upon payment.
Tax Inspector states that CRITERION 1 IS NOT FULFILLED.
Tax Inspector states that CRITERION 2 IS NOT FULFILLED.
Tax Inspector states that CRITERION 3 IS NOT FULFILLED.
Tax Inspector states that CRITERION 4 IS NOT FULFILLED.
Tax Inspector states that CRITERION 5 IS NOT FULFILLED.
Tax Inspector states that CRITERION 6 IS FULFILLED.
Tax Inspector states that CRITERION 7 IS NOT FULFILLED.
Tax Inspector states that CRITERION 8 IS FULFILLED.
Tax Inspector states that CRITERION 9 IS FULFILLED.
TEST RESULTS:
Out of 9 criteria, the tax inspector decided that the entrepreneur fulfills 3 criteria with regard to its relationship to Company A, as the client, but doesn’t fulfill 6 remaining criteria. That means that the entrepreneur has not failed the test.
Would you have passed the test following this example?