B2B Contracts – The Head of KAS to Prevent The Circumvention of the Law: An Example of Bogus Self-Employment

What is a B2B Contract?

Today’s labour market is increasingly based on flexible forms of employment, with one popular option among companies being B2B (Business-to-Business) contracts. This type of contract governs the cooperation between two businesses. The most common situation is for a sole trader to enter into a contract with another business – a company or another sole trader.

A distinctive feature of B2B contracts is their civil law nature. This means that it is governed by the Civil Code rather than the Labour Code. It gives both parties more freedom to shape the terms of cooperation, but also requires greater legal awareness and prudence when entering into it.

For many businesses, a B2B contract is an attractive alternative to traditional full-time employment, allowing the flexible adaptation of the terms of cooperation to the specific needs and capabilities of both parties. However, due to the different scope of legal regulations, when entering into this type of contract, it is advisable to carefully analyse its terms and conditions in order to avoid potential legal pitfalls.

Key differences between a B2B contract and an employment contract

The choice between a B2B contract and an employment contract involves a number of important consequences. In order to enter into a B2B contract, you have to have your own company. In the case of an employment contract, the employee does not need to run a business, their task is merely to provide work for the employer.

One of the main differences between the two forms of cooperation is the assumption of risk. In the case of a B2B contract, the entrepreneur alone is responsible for the success or failure of the business, including possible losses. Under an employment contract, an employee is protected from financial risk by their employer.

The form of cooperation in the case of a B2B contract offers the entrepreneur greater decision-making and independence, being free to organise their work and execute purchase orders. In an employment contract, it is the employer who decides on the scope of duties, working hours and conditions of employment.

Another important difference is liability. Under a B2B contract, the entrepreneur is responsible for the execution of the order to the other party, with any errors possibly resulting in financial or legal consequences. A salaried employee, on the other hand, has limited liability for damage caused during the course of work, with this liability being clearly defined in the Labour Code.

Tax responsibilities are also different. Businesses settle their own accounts with the tax authorities and pay their own taxes and social security contributions, while an employer is responsible for paying payroll taxes and contributions to social and health insurance for its employees.

A B2B contract also offers the possibility to use subcontractors, which can be an attractive option for businesses involved in larger projects. Under an employment contract, subcontracting is not an option and all duties must be carried out by the employee personally.

Remuneration in a B2B contract usually depends on the outcome of the work; payments can vary in frequency, depending on the agreement between the parties. In an employment contract, remuneration is fixed and paid regularly, usually on a monthly basis.

It is also worth noting that employee entitlements, such as the right to paid leave, overtime or specific working hours, are guaranteed in the employment contract. Entrepreneurs working under a B2B contract do not enjoy the rights guaranteed by the Labour Code.

Switching from an employment contract to a B2B contract and vice versa: What is worth knowing?

The decision to switch from an employment contract to a B2B contract, or vice versa, requires careful analysis and consideration, especially when it involves continuing to work with the same entity, such as an existing employer or contractor. One key aspect to consider is that entering into a B2B contract with a former employer prevents you from benefiting from “start-up relief” offered to new businesses, which can have significant financial consequences.

It is equally important to make sure that the nature of the relationship between the parties actually allows for a B2B contract and is not actually an employment contract. Otherwise, authorities such as the State Labour Inspection (PIP) may subject the relationship to detailed scrutiny. Although it is the labour court that ultimately decides on the existence of an employment relationship, the PIP has the right to bring legal action in this case.

Therefore, it is advisable to carefully analyse all the legal aspects and to consult an expert before deciding to switch to a B2B contract. In this way, you can avoid unpleasant surprises and potential legal disputes that may result from an incorrect assessment of the nature of the cooperation.

Decision of the Head of KAS: Example of the risk of bogus self-employment

On 12 June 2024, the Head of the National Revenue Administration (Krajowa Administracja Skarbowa, KAS) took an important decision by refusing to issue a safeguarding opinion in the case of the applicant, a joint-stock company acting as a parent company. The decision draws attention to the risks associated with attempts to circumvent tax legislation through the use of bogus B2B contracts.

The case concerned the plans of the parent company, which employed staff under employment contracts. As part of the new strategy, the company intended to establish a limited liability company (a subsidiary) and to terminate the employment contracts with its existing employees. These employees were then to set up sole-trader businesses and establish cooperation with the daughter company on the basis of B2B contracts. The change would only affect the formal employment structure, while the nature of the work would remain unchanged.

The Head of KAS considered such a state of affairs to be an attempt to avoid tax regulations, which resulted in the refusal to issue a safeguard opinion. This decision, although issued in a specific individual case, highlights the problem of the phenomenon known as bogus self-employment, i.e. a situation in which seemingly independent businesses in reality provide work under conditions typical of an employment relationship.

Although this decision is not binding on other taxpayers, it is an important warning for companies considering similar activities. It also highlights that attempts to convert employment contracts into B2B contracts in order to gain tax advantages may be considered unlawful, with serious legal and financial consequences.