It is obvious that due to the coronavirus situation, many entrepreneurs will face the dilemma of how to get money for basic payments, and even more so for paying public law liabilities. Ultimately, you will have to choose which taxes to pay and which not.
What is at stake in such a case and what can the entrepreneur do to ensure that the consequences are as small as possible or there are none at all?
An entrepreneur who fails to pay VAT on time does not have to be afraid of consequences as severe as in the case of failure to pay the collected advance on PIT on employees’ salaries on time, even if the advance payment is collected only “on paper”.
For years we have been observing court judgements based on which entrepreneurs are convicted for not paying PIT advances on employees’ salaries, even if the entrepreneur in question physically had no money and chose to pay net salary to the employee instead of paying PIT to the Tax Office. This happens even in situations where a court expert, on the basis of the accounts of a given company, finds that the entrepreneur was not objectively able to pay this tax on time. Courts find that if an entrepreneur had money to pay net salaries of employees, it is guilty of the offence of not paying PIT on employees’ salaries. According to the courts, the entrepreneur could reduce employees’ salaries or, in the long run, declare bankruptcy and pay tax on time. A choice made by an entrepreneur to pay an employee is treated as guilt in committing an offence regulated in Article 77 § 1 of the Fiscal Penal Code. Thus, the assessment of this fiscal offence is assessed by the courts, in my opinion, in the context of more of a risk than guilt, which should not apply in the case of fiscal and penal law.
Unfortunately, only a few judges pass judgements that go against this kind of jurisdiction and acquit the entrepreneur.
Failure to pay the collected PIT advance on an employee’s salary on time, even if it is made once in a short period of time, is therefore an offence in almost every case. This offence shall in principle be punishable by a fine of up to 720 daily rates or imprisonment of up to 3 years, or both.
A way to avoid the risk of committing this offence is for the entrepreneur to file an application for deferment of the tax payment deadline or splitting the tax payment in instalments (Article 67a § 1(1) of the Tax Ordinance, hereinafter referred to as the TO – this provision applies accordingly to receivables due from payers or debt collectors – Article 67c § 1 of the TO).
In order to obtain a tax deferral or an instalment plan, the application must be justified by an important interest of the taxpayer or the public interest. I hope that announcing an epidemiological emergency will be a sufficient argument for the Tax Office to apply this provision for entrepreneurs.
Another thing is when VAT is not paid on time (Article 57 § 1 of the Fiscal Penal Code). Apart from the fact that it is a fiscal offence for which there is only a fine and is subject to other rules (e.g. the statute of limitations – which, by the way, often occurs in the case of raising a defence), it must be persistent, and therefore it must be a long delay or a multiple, repetitive one. A temporary delay will not be treated as fiscal penal offence.
As far as VAT is concerned, a taxpayer may, in addition, pursuant to the said provision of Article 67a § 1 item 1 of the Tax Ordinance, submit a request for deferment of payment of that tax or splitting it in instalments also justifying it by an important interest of the taxpayer or the public interest.
Let’s hope that the government will soon take steps that will not force us entrepreneurs to submit such requests, but will solve the resulting problem comprehensively.
To sum up:
- The legal consequences of a failure to pay PIT on employee remuneration are much more severe than failure to pay VAT on time.
- In order to protect against the consequences of failure to pay VAT or PIT on employee salaries on time, the entrepreneur may submit a request for deferment of payment or splitting VAT and PIT on employee remuneration in instalments.