Inexorable SFS: how businesses have to pay the maximum single tax rate
Complainee: The Main Department of the State Fiscal Service in Kirovohrad Oblast (SFS)
Complaint in brief: The Business Ombudsman Council was approached three times by businessmen couple from Kirovohrad Oblast. Now we are going to tell you about subject of complaints in the third case here.
The TC requires an individual entrepreneur’s business to be registered at the place of residence. That's exactly what entrepreneurs from Kirovohrad did. They registered a business in their own house in the village of Pryschepivka, while actually worked in the city of Novomyrhorod, which is 12 km away from Pryschepivka. The two administrative units are accountable to different local authorities, and have the same rate for the second group single tax taxpayers – 10%. However, the SFS imposed a 20% tax of the minimum wage per month on the complainants.
When substantiating its position, the SFS referred to the TC. If a taxpayer of the second group doing business in the territory of more than one administrative unit, the maximum rate of the single tax is applied. Since place of work of spouses-entrepreneurs and their tax address do not match, then, in the opinion of the supervisory authority, they are doing business in more than one administrative unit. Thus, the maximum single tax rate should be applied.
The complainants strongly disagreed with this instead and insisted that they worked in Novomyrhorod only, while were just registered and resided at their home address.
Actions taken: After reviewing the case file, the Council upheld the entrepreneurs’ position
According to the TC, single tax is paid at the tax address. A private entrepreneur’s tax address is the place of his/her residence, at which he or she is registered as a taxpayer by the supervisory authority. Hence, a private entrepreneur’s tax address is anyway his or her place of residence. However, the concept of “business activity” has an independent meaning associated with production/delivering works/services, and therefore cannot automatically cover the fact of a private entrepreneur’s residing at a certain address.
The Business Ombudsman Council concluded in the case of complainants, their tax address was solely their place of residence as individuals and in no way related to the business activity. The investigator expressed this position to the SFS in writing and asked to recalculate the single tax amount for entrepreneurs. In addition, the investigator went to Novomyrhorod to personally meet with the supervisory authority representatives in the course of the complainants' case review.
Result achieved: However, the SFS remained steadfast and refused to apply a 10% tax rate. The Council suggested the complainants two options to follow up:
1) Stop paying the maximum single tax rate and go to court after receiving a respective SFS tax claim. Case law in similar cases shows in favor of business.
2) Allow the SFS to inspect the complainants to confirm the fact of carrying out business activity only in Novomyrhorod.
However, entrepreneurs accepted neither of the proposed options. Therefore, the Council had to dismiss the case.