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Publication date: 01.05.2024
Position of the Supreme Court of Ukraine: the category of entrepreneurial activity includes activities of an individual who is not registered as a business entity but is engaged in such activities directly independently, systematically and at his own risk.
The Supreme Court expressed its position on taxation of systematic sale of real estate by an individual. The category of entrepreneurial activity includes the activities of an individual who is not registered as a business entity but is engaged in such activities directly independently, systematically and at his/her own risk.
Thus, as noted by the Supreme Court in its ruling of March 7, 2024 in case No. 480/293/20, the actions of an individual taxpayer can be qualified as systematic entrepreneurial activity, even if the contracts do not specify his status as an entrepreneur.
Circumstances of the case
During an on-site tax audit of a business entity - a Group 2 single tax payer - it was found that the taxpayer carried out additional activities that were not specified in the tax return and had signs of entrepreneurship.
In particular, the taxpayer made 23 sales of real estate in 2018 for an amount exceeding UAH 1 million (the contracts did not specify the taxpayer's status as an entrepreneur).
The taxpayer objected to such conclusions and argued that he sold real estate as an individual, not as a business entity. The taxpayer demanded that the tax assessment notices and decisions on imposition of penalties be declared unlawful and canceled.
The Sumy District Administrative Court dismissed the claim by decision dated November 17, 2021. The court of first instance held that such activities are subject to qualification as entrepreneurial, so the payer must pay taxes as an individual entrepreneur.
The Second Administrative Court of Appeal overturned the decision of the court of first instance and upheld the claim. The court considered that the controlling authority did not have sufficient evidence to determine the taxpayer as an individual entrepreneur and apply the appropriate taxation.
What the Supreme Court decided
The Supreme Court upheld the cassation appeal of the tax service, canceling the contested court decision and upholding the decision of the court of first instance.
According to the SCC, in tax relations there is a difference between the legal status of an individual entrepreneur and an individual taxpayer.
In carrying out entrepreneurial activities by an individual, the key is to clearly distinguish in which relations he acts as an entrepreneur and in which as an individual. An individual who acquires the status of an entrepreneur does not lose his or her basic status as an individual, but only acquires an additional characteristic as an entrepreneur. This does not limit the rights of a person to carry out entrepreneurial activity, but rather confirms his/her right to such activity and responsibility for it.
The category of entrepreneurial activity includes the activities of an individual who is not registered as a business entity but is engaged in such activities directly independently, systematically and at his/her own risk.
If the main purpose of the taxpayer is to make a profit from the systematic sale of property, and not just the alienation of surplus property, this can be considered entrepreneurial activity.
The provisions of the TC of Ukraine do not contradict the Constitution of Ukraine and other laws, as they do not require the forced acquisition of the status of an individual entrepreneur for carrying out activities that do not have the characteristics of entrepreneurship. Despite the absence of requirements for mandatory registration of an individual as an entrepreneur, the legislation establishes obligations based on the scope and forms of activities carried out.
The actions of the taxpayer to sell 23 houses during the year for an amount exceeding UAH 1 million should be qualified as systematic entrepreneurial activity, even if the contracts do not specify the status of an entrepreneur.
Thus, we can see that the current law was adopted taking into account the amendments to the legislation and the fact that the trial itself and the judicial defense in court were carried out.
Thus, we can see that the adopted amendments to the current law were adopted taking into account changes in the requirements of the time and the imposed martial law in Ukraine, as well as the fact that a legal analysis of the situation, a analysis of the situation by a lawyer , а Legal analysis of the situation and a Legal opinion were carried out.
