The Ombudsman of Small and Medium Entrepreneurs asked the Minister of Finance for legal clarifications on the settlement of funds from the relief of contributions under the anti-crisis shield.
The Ombudsman's question was:
In the light Article 31zx with regard to Article 31zo(1) Act Covid-19 as applicable from 18 April 2020, cost of obtaining the entrepreneur's income, March-May months 2020, are collected from employees' salaries social and health contributions which will not be paid to the Social Security Institution in connection with the exemption from the obligation to pay them?
As a record of this scope, the Ombudsman mentions:
- Article 31 zx Act dated 2 March 2020 specific prevention, prevention and eradication solutions COVID-19, other infectious diseases and the resulting crisis situations (Journal of Laws of 2020, item 374 i.e.) - Act Covid-19, added by Article 1(17) Act dated 31 March 2020 (Journal of Laws of 2020, item 568) amending the Act from 31 March 2020, modified by Article 73(67) Act dated 16 April 2020 (Journal of Laws of 2020, item 695) amending the Act from 18 April 2020:
Revenue from the exemption from the obligation to pay contributions in question under Article 31zo, do not constitute income within the meaning of the provisions on income tax on individuals and corporate income tax.
- Article 31zo(1) Act dated 2 March 2020 specific prevention, prevention and eradication solutions COVID-19, other infectious diseases and the resulting crisis situations (Journal of Laws of 2020, item 374 i.e.) as amended by Article 73(65) point (a) Act dated 16 April 2020 (Journal of Laws of 2020, item 695) amending the Act from 18 April 2020
At the request of the payer, contributions shall be exempt from the obligation to pay unpaid social security contributions, health insurance, the Labour Fund, the Solidarity Fund, the Guaranteed Workers' Benefits Fund or the Pensions Fund, due for the period from the date 1 March 2020 up to day 31 May 2020, as shown in the clearing declarations submitted for that period, if it was reported as a contributor:
- 1) before day 1 February 2020 and for a day 29 February 2020, 2) period from day 1 February 2020 up to day 29 February 2020 and for a day 31 March 2020, 3) period from day 1 March 2020 up to day 31 March 2020 and for a day 30 April 2020
- - reported to social security less than 10 insured.
- Article 22(6ba) u.p.d.o.f.:
Claims from the titles in question. 12 section 1 and 6, and social security benefits paid by the establishment, subject to section 6bc, are the costs of obtaining revenue in the month for which they are due, provided that they have been paid or made available within the time limit resulting from the provisions of labour law, contract or other legal relationship between the parties. In the event of a failure to comply with that time limit, those amounts shall apply. Article 23(1)(55).
- Article 23(1)(55a) u.p.d.o.f.
It shall not be considered as the cost of obtaining revenue: not paid to the Social Insurance Institution, subject to the point 37 (social security contributions and the Labour Fund, the Solidarity Fund and other special-purpose funds created under separate laws - from prizes and premiums paid in cash or securities from income to income tax;) and Article 22(6bb) (Contributions to claims in question Under section 6ba, specified in Act dated 13 October 1998 on the social security system, in part financed by the payer of contributions, contributions to the Labour Fund, the Solidarity Fund and the Guaranteed Workers' Benefits Fund, subject to Article 23(1)(37), are the costs of obtaining revenue in the month for which these receivables are due, provided that contributions are paid), as specified in Act dated 13 October 1998 the social security scheme, in part financed by the contributor;
- Article 15(4g) the Corporate Income Tax Act
The cost of obtaining income is due from the titles in question.
12 section 1 and 6 Act dated 26 July 1991 on income tax on individuals and social security benefits paid by the undertaking, subject to section 4ga, are the costs of obtaining revenue in the month for which they are due, provided that they have been paid or made available within the time limit resulting from the provisions of labour law, contract or other legal relationship between the parties.
In the event of a failure to comply with that time limit, those amounts shall apply. Article 16(1)(57).
- Article 16(1)(57a)) the Corporate Income Tax Act
The cost of obtaining revenue not paid to the Social Insurance Institution of contributions shall not be considered to be subject to point 40 and Article 15(4h), specified in Act dated 13 October 1998 the social security scheme, in part financed by the contributor;
The Ombudsman notes the inconsistencies in the above records.
Well, the interpretation Article 22(6ba) u.p.d.o.f., as well as Article 15(4g) the Corporate Income Tax Act, with regard to Article 31zo(1) and Article 31zx Act Covid-19 as applicable from 18 April 2020, should lead to the conclusion that at the expense of obtaining the entrepreneur's income in March - May 2020, are collected from the salary of employees social and health insurance contributions which will not be paid to the Social Insurance Institution in connection with the exemption from the obligation to pay them on the basis of Article 31zo(1) Act Covid-19 as applicable from 18 April 2020.
In addition, Act dated 31 March 2020 amending the Act on Special Solutions for Prevention, Prevention and Control COVID-19, other infectious diseases and their emergency situations and certain other laws (Journal of Laws of 2020, item 568) points out that the decommitted contributions will be considered paid by the Social Insurance Institution (Article 31zs(1)).
Consequently, neither the provision Article 23(1)(55a) either Article 16(1)(57a)) the Corporate Income Tax Act should not be used in the case under consideration.
MF legal explanations from 19 June 2020
In response to the Ombudsman's speech, the legislator stated that:
as provided by the provision Article 31zx Act on COVID-19, revenue from the exemption from the obligation to pay the contributions referred to under Article 31zo, do not constitute income within the meaning of the provisions on income tax on individuals and corporate income tax.
This means that the value of the benefit in the form of an exemption from the obligation to pay unpaid contributions is not subject to income tax on the payer of those contributions.
By referring to the above, the income tax rules, as regards the possibility to consider as costs of obtaining the revenue of contributions from which the payer has been exempted on the basis of Article 31zo Act COVID-19, MF explains that if an employer has benefited from an exemption for the payment of unpaid social and health contributions, i.e.
those which should be deducted as a payer from employees' salaries, including employees' salaries, he has thus not incurred any related expenditure. Consequently, there is no basis for including in the cost of obtaining revenue from expenditure which the taxpayer did not bear and from which he was definitively exempt by law.
This rule does not exclude the rule Article 22(6ba) PIT laws and, respectively, Article 15(4g) The CIT Act, which aims to mobilise the employer to pay the remuneration on a timely basis and to transfer to ZUS the part of the amount deducted from that remuneration.
In the opinion of the Ombudsman of Small and Medium Entrepreneurs, interpretation Article 22(6ba) u.p.d.o.f., as well as Article 15(4g) the Corporate Income Tax Act, with regard to Article 31zo(1) and Article 31zx Act Covid-19 as applicable from 18 April 2020, should lead to the conclusion that at the expense of obtaining the entrepreneur's income in March - May 2020, are collected from the salary of employees social and health insurance contributions which will not be paid to the Social Insurance Institution in connection with the exemption from the obligation to pay them on the basis of Article 31zo(1) Act Covid-19 as applicable from 18 April 2020.
According to the Ombudsman, in the present case they should be regarded as ‘available’ within the meaning of Article 22(6ba) U.p.d.o.f. and Article 15(4g) the Corporate Income Tax Act, but not actually paid, due to the exemption from the obligation to pay them resulting from Article 31zo(1) Act Covid-19 as indicated on the date above and subject to the use of the resulting mode.
Unfortunately, this argument is hard to agree with.
If, in fact, the gross amount was paid to the worker physically, the part of the contributions would also remain at the disposal of that worker not being discharged to ZUS.
However, the mechanism envisaged under Article 31zo Act on COVID-19, it de facto confers on the employer a reduction in his employment obligations. Thanks to these solutions, the employer does not put the employee at the disposal of the gross remuneration, as some of this remuneration is entitled to retain and dispose of it freely.
Therefore, there is definitely no obligation for that taxpayer to pay part of the remuneration due. The resulting preparation is also measurable and definitive.
Moreover, the Act on COVID-19, in the above-mentioned provision Article 31zx, also confirms that the value of the exemption resulting from Article 31zo is a contribution payer.
It is therefore difficult to say in relation to this claim that it is an expense at the same time and therefore a tax cost. This does not alter the fact that, on the basis of the said provision, Article 31zx Act on COVID-19, the value of this grant is not subject to income tax.
In summary, a certain income, even if it is exempt from taxation, cannot be an expense at the same time.
Nor does it affect the fact that the decommissioned contributions will be considered paid by the Social Insurance Institution (Article 31zs(1)).
State Article 31zs Act on COVID-9, in the case of persons engaged in non-agricultural economic activities and persons working with them and clergy, where the provisions make the law or the amount of social security benefits dependent on the payment of contributions, social security contributions in question under Article 31zo, exempt from the obligation to pay them shall be treated as contributions paid.
This provision merely confirms that, despite the lack of payment of contributions due for the insurance of the persons indicated therein, those insured retain the right to social security benefits.
However, bearing the cost of obtaining income, as I have pointed out above, is a factual event, not a legal presumption.
1 Act dated 26 July 1991 on personal income tax (Journal of Laws of 2019, item 1387, as amended).
2 Act dated 15 February 1992 on corporate income tax (Journal of Laws of 2019, item 865, as amended).