Criteria determining the classification of a partner’s activities

In its judgment, the Supreme Administrative Court (SAC) confirmed the criteria decisive for the assessment of a partners’ work for a company from a tax perspective. The first criterion is the degree of similarity between the activities performed by the company and the shareholder. The greater the degree of similarity between the activities performed by the company and the partner. the greater the degree of similarity between these activities, more likely it is that the partner’s  is part of the corporate relationship with the company, i.e. dependent activity. Affinity may establish, for example, the same subject matter of the partner’s trade license as the company’s activities. On the contrary, if the partner’s activities differ from those of the company, this more likely lead to the conclusion that it is a self-employed activity of the partner.

The second criterion is whether the partner provides the services to entities other than the company. If the partner performs the vast majority of their business activities for the company, it again constitutes dependent activity. On the other hand, providing service to multiple customers, one of whom is the partner’s company, is more likely to be a sign of self-employed activity.

Both regimes can be combined, i.e. the partner may receive income from the company both for work that is dependent activity and for self-employed activity. However, these should be different and unrelated types of activities.

In the case under SAC review, the partners had a trade license in the field of project activities in construction, as did the company, and participated in the preparation of construction projects for the company. Both activities were very closely related, complemented each other, and there was a clear direct link between the activities of the company and its partners. In addition, the personal performance of work for the company represented the sole or significant source of income for the partners.  Therefore, the SAC concluded that it was not a case of the partners’ own entrepreneurial activity, but rather a factual involvement in the operation  of the company, i.e. the performance of dependent activities.

In its judgment, the SAC also identified circumstances that do not affect the assessment of the partner’s activities. For example, it is not decisive whether the partners perform work according to the instructions of other persons. The instructions given by others are rather formal in nature, given that it is the partners who  manage the company. Similarly, neither the size of their shares nor the fact that the partners’ activities were required by the company’s investors play a role.

Conclusion

According to the SAC, it will always depend on the assessment of the specific situation and on what prevails when considering the above criteria – whether the relationship is corporate or a supplier-customer relationship. In the first case, income from work for the company will be taxed as a dependent activity, regardless of the form of cooperation. In the latter case, the income from the activity for the company will be taxed as self-employment.