Constitutional Court rules on income taxes for the chairman of a joint stock company
13 June 2022
In a recent judgment, the Constitutional Court confirmed the necessity to tax both income from employment and activities carried out through a mandate agreement for the chairman of the board of directors of a joint stock company. In the case in question, the previous courts held that the vast majority of the activities performed by the mandatary were typical in nature for the performance of the office of chairman of the board of directors, i.e. the business management of the company, and the remuneration from these activities is then remuneration under Section 6(1)(c) of the Income Tax Act.
For example, the taxpayer was not helped by arguments where, as a principal, he properly taxed the income on his individual tax return. In addition, the taxpayer argued that the Supreme Administrative Court should have preferred the will of the parties to enter into the mandate agreement to the public law rules on taxation.
The Constitutional Court stated it does not matter which legal relationship the taxpayer receives income under that for the qualification of income classified for income tax purposes under Section 6 of the Income Tax Act. For the determination of the public law tax liability, it is not decisive what type of contract is concluded between the parties in the sphere of employment law, commercial law or civil law, i.e. in the sphere of private law, on the activity that is the source of the income to be taxed. The decisive factor is how the content of such a transaction is defined, in this case for the purposes of taxation in public law. Private law rules allow subjects to choose the legal act by which they establish the intended legal relationship, i.e. whether they conclude, for example, a contract for work, a contract for the procurement of goods, a mandate contract, an employment contract, a contract for the performance of work, etc. Public law no longer gives the subjects a choice as to how they tax the income from the legal relationship. It is essential for the tax authorities to determine unambiguously the actual content of the legal relationship that has been entered into.
It is no longer possible to state that this decision has broken through an imaginary wall into joint stock companies, where until now there have been several similar decisions mainly directed at the managing directors and shareholders of limited liability companies. There is no doubt that public limited companies also need to keep a closer eye on how members of their bodies are remunerated and subsequently taxed.