In the early stages of tax reform, faced with a decline in the number of trades, the Tax Administration recognized the need to encourage the development of small entrepreneurs, especially craftsmen, who independently carry out economic activities. Support for self-employment was prepared, and tax regulations were adjusted to increase the number of independent activities as much as possible. After all these measures, the number of independent activities, especially those that took advantage of the flat-rate taxation option, suddenly increased, raising concerns that these tax benefits were being used contrary to the purpose of the law, namely to pay less tax. As a result, tax regulations were readjusted to prohibit the use of tax benefits contrary to the purpose of the law, and the characteristics of dependent work (employment relationship) were defined.
Correction of the Law
The Tax Law stipulates that a person who benefits from tax advantages by using the tax system through organizational forms that are taxed at lower prescribed tax rates, which were not intended for a specific group of taxpayers, will be considered to be using tax benefits contrary to the purpose of the law.
One of the cases mentioned in the regulation is one in which the payer of income for work that has the characteristics of dependent work contracts with the taxpayer other ways to perform the work or uses organizational forms that are taxed at lower tax rates (flat-rate crafts). The law further stipulates that if it is determined that the flat-rate craft is actually a hidden workplace, that craftsman will be considered responsible for paying taxes and contributions as if it were an employment relationship, and the client of the work (‘hidden employer’) will be liable for those public contributions as a guarantor payer.
When a Hidden Employment Relationship Exists
To claim that something is a hidden employment relationship, its characteristics must be precisely determined. They are categorized into three categories, and the characteristics of the employment relationship are determined based on the fulfillment of three criteria: behavioral control, financial control, and the relationship between the parties. Behavioral control encompasses facts that show whether the employer has the right to direct and control what the employee does and how they perform the work by giving instructions, training, or other means; financial control encompasses facts that show whether the employer has the right to direct or control the financial and business aspects of the employee’s work; and the relationship between the parties encompasses facts that show the nature of the relationship between the parties.
The tax regulation defines that to determine the characteristics of dependent work, the integrity of the relationship between the payer of income and the taxpayer performing the work must be considered, taking into account all facts relevant for taxation and all elements of the characteristics of dependent work. An interesting provision of the tax regulation states that in determining the characteristics of dependent work, not all criteria of the characteristics of dependent work need to be fulfilled simultaneously. The characteristics of dependent work are determined by the decisive influence of behavioral control and/or financial control of the payer of income over the taxpayer performing the work and/or if the relationship between the parties indicates a decisive connection in the execution of the work.
