In the interpretative decision No. 6/2022 of the Supreme Administrative Court (SAC), the SAC decided that the tax administration is not competent to officially recognize an employment contract, disguised as civil contract as defined by the Obligations and Contracts Act, which is in violation of article 1, para. 2 of the Labour Code. The Labor Inspectorate is the only authority that is competent to recognize an employment contract, disguised as civil contract, according to article 405a of the Labour Code. You can find the original text of the interpretative decision No. 6/2022 of the Supreme Administrative Court (SAC) here.
There has been controversial case law concerning the accurate interpretation of article 405a of the Labour Code regarding tax inspection by the tax administration and that is the reason why the interpretative decision No. 6/2022 of the Supreme Administrative Court (SAC) is of great importance – it finally gives an answer on whether tax administration has the right to officially recognize an employment contract, disguised as civil contract.
The SAC has decided that the only authority that is competent to recognize an employment contract, disguised as civil contract is the Labor Inspectorate, which means that the tax administration has no right to do so.
According to article 2, par. 1 of the Tax and Social-Insurance Procedure Code the tax administration is competent to do only the things that have been permitted by the law, which means that they could not have more rights than the ones prescribed by the law. Until now some have considered that the tax administration has the competence to officially recognize an employment contract, disguised as civil contract, because it is not explicitly forbidden by the law. The SAC states that this argument is not valid, because the tax administration is obliged to strictly follow the law and must not try to expend the number of rights that they have according to the law.
The Labor Inspectorate is the only authority who is competent to officially recognize an employment contract, disguised as civil contract. In accordance with article 405a of the Labour Code there is a specific procedure that the Labor Inspectorate must follow. The Labor Inspectorate has to publish a decree in order to officially recognize an employment contract. In conjunction with this decree the Labor Inspectorate ask the employer to hire an employee on an employment contract.
The SAC states that during tax inspection the tax administration has the right to recognize the civil contract as such, without officially recognizing it as an employment contract, disguised as civil contract. The tax administration could also turn to the Labor Inspectorate and ask them to start a procedure in order to find out whether the civil contract is in fact an employment contract or not.
