In order to avoid paying the same taxes as an employee, natural persons who conduct independent activities (PFA, PFI, copyright) must meet at least 4 out of the 7 new criteria regarding independent activities, criteria entered into for on July 10th, through law 187/2015 regarding the approval of OUG 6/2015 for the modification and completion of the Tax Code.
Are the new criteria clear? Will the risk for wrongful reconsideration of such revenues as salaries still exist? Are they too restrictive? Will they get in the way of those trying to conduct such activities?
Although the intention of the lawmakers was to reduce the risk of incorrect reinterpretations, with negative effects on the taxpayers (the taxation rate is circa 26% for independent activities and circa 75% for employees), Contexpert considers that the new regulations are not without ambiguity, as will be described below:
How much clarity do the new criteria bring? Does the reinterpretation risk remain?
The modifications regarding independent activities were introduced at art. 7 of the Tax Code.
Thus, the independent activity consists of any activity conducted by a natural person with the purpose of obtaining revenues, which meets at least 4 of the following criteria:
Observation: A fixed or imposed program, the carrying out of activities at the premises of the beneficiary is typical for dependent activities. However, even if such requirements are not part of the contract, the criterion may generate interpretations; Depending on the type of activity, some people may be needed to conduct some activities at the premises of the beneficiary of receiver of services/client or to carry out some activities in a certain time interval.
Observation: In the first version of the Tax Code, which was later revised, it is mentioned that a natural person can work “for one or more clients”. In the form which will come into force, the expression “for more clients” was kept. Even if the taxpayer has only one client, as long as no exclusivity clauses are imposed by the client, then there should be no possibility for reconsidering the activity, although there is the risk that, depending on the type of activity, the tax inspectors consider that the criterion is not met.
Observation: The criterion refers to the risks regarding losses, insolvency etc. In this case also, the type of activity will matter, but we estimate that the majority won’t have their activities reconsidered based on this criterion.
Observation: In general, people working independently use their own material base (computer, car, phone etc.). However, there are situations when the natural person has to also work at the premises of the client, using the client’s material base. Therefore, there has to be a delimitation in such cases; up to what point is the natural person permitted to use the assets of the beneficiary/client so that the activity is still considered independent.
Observation: We consider that this criterion won’t cause any reinterpretation situations.
Observation: This criterion targets the liberal professions (lawyers, accountants, tax consultants, medics etc.). Other categories of natural persons that carry out independent activities will not be able to meet the criterion.
Observations: We consider that, if there are no contractual clauses that limit the possibility of the natural person to use hired personnel, collaborators etc., then this criterion can be met. However, there are contracts where, due to confidentiality reasons it is forbidden to subcontract any 3rd party. Also, there are situations where the direct contribution of the natural person is needed, thus making it rather complicated for him to subcontract his activities.
Watch out for the economic substance of the transaction!
The same law 187/2015 also modifies article 11, paragraph 1:
“When calculating a tax or social contribution, the tax authorities may or may not take into consideration a transaction that has no economic purpose, adjusting its taxation effects, or may change the form of a transaction/activity, for the purpose of reflecting its economic contents. The tax authority is obliged to motivate the tax decision issued as a result of not taking a transaction into consideration or as a result of changing the form of the transaction, by indicating the relevant elements related to the purpose and contents of the transaction which are the subject of not taking into consideration/change, and to present proof for its decision.”
Observations: The provision of article 7 will be analyzed through the means of article 11. In conclusion, even if at least 4 of the 7 criteria for an activity to be considered independent are met, it is possible that the activity can be reconsidered due to the fact that, alto the contractual terms abide by the provisions of article 7, its contents does not abide by the provisions of article 11. Such an interpretation may lead to a reinterpretation of the revenue, from a taxation point of view
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