Warsaw, 20th May 2019
The most dangerous version of the entrepreneur’s test is the action of the ministry without changing the law, on the basis of a change in the interpretation of the law
Regardless of whether its introduction will be a legislative amendment or a change in the way the law is applied, the “entrepreneur test” can have fatal consequences both for the economy and for a large part of entrepreneurs – this is a basic conclusion of the report of the Union of Entrepreneurs and Employers “The entrepreneur’s test. How the government raises money for its promises”.
The “entrepreneur’s test” was supposed to be a tool for verification whether a given entity is conducting real economic activity, and thus, has the right to make use of the flat PIT rate as well as of the preferences in the field of social security premiums. Experts of the Union of Entrepreneurs and Employers indicate that the government’s information policy in this field can be characterised by total chaos.
“For the very first time, the test appeared in some informal statement of Deputy Minister Filip Świtała,” recalls Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers. “Later, the Ministry denied this information and claimed that there was no project in the pipeline. Then, the “entrepreneur’s test” appeared in a draft of the National Long-Term Financial Plan only to be replaced by “tightening of the classification of revenue from non-agricultural business activity” in the final wording of the Plan. In the meantime, both Minister of Technology and Entrepreneurship Jadwiga Emilewicz and Prime Minister Mateusz Morawiecki would swear that there wouldn’t be any test. Entrepreneurs have no idea what to expect.”
The set of unknown variables is not limited, however, only to the question whether the test will be introduced. There are also doubts that concern the potential formula planned by the Ministry of Finance, that is its authors. Due to the multitude of changes in what government representatives say in the media as well as in the National Long-Term Financial Plan itself, it is not possible to determine if there are (were) amendments planned to be implemented or “only” changes in how the already applicable law would be enforced. While Minister Emilewicz claims that no legislative changes are planned, in the National Long-Term Financial Plan, it is clearly stated that the tool that the legislator intends to use in order to tighten the classification of revenue from “non-agricultural business activity” is, among others, amendment to the Act on Personal Income Tax.
Experts of the Union of Entrepreneurs and Employers emphasise the fact that regardless of the chosen method, the introduction of the test will have serious economic and legal consequences.
“One can even say that not amending the law would be even more dangerous than the introduction of new regulations,” says Jakub Bińkowski, Secretary at the Union’s Law and Legislation Department. “If new provisions were adopted, they would be effective from their entry into force, without the possibility of applying them in such a way that would have a retroactive effect. They would also be subject to the process of social consultations. If the variant of amending the way of applying already existing regulations were chosen, some entrepreneurs could expect their declarations to be challenged even up to five years back.”
Threats related to the entrepreneur’s test unfortunately are not limited to tax consequences and the need to pay the difference between the tax calculated in accordance with the tax scale and the flat tax. The statement that a given entity contracting with another entity did not run business activity, has serious consequences in the field of VAT or social security contributions. Moreover, it would not be neutral from the penal-fiscal point of view. If it were decided to undermine the type of legal relationship between existing contractors and determine that their relationship was that of employment, the test would also lead to unpredictable complications in the field of labour law.
“There need to settle unused holidays would arise, whereas the ‘employer’, that is the hitherto contractor, would be responsible, for example, for unpaid premiums and advance tax payments as a tax payer,” warns Cezary Kaźmierczak. “The magnitude of risks is enormous, while the likelihood of achieving the assumed financial effect I assess as very low. The government claims that they will gain PLN 1.2 billion, but considering the shape of the test declared so far, one can easily come up with at least a few ways to avoid it. The British example shows that charging taxpayers this way will not be as easy as the decision-makers imagine.”
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