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The sale of real estate by an individual may be considered by the State Tax Service as an entrepreneurial activity

The court of cassation upheld the position of the controlling authority on the legality of the decisions taken by which the plaintiff increased the amount of the monetary obligation for the "military fee", additionally accrued the obligation to pay a single tax on individuals and imposed penalties.

Analyzing the plaintiff's arguments that within the disputed legal relations on the sale of real estate he acted as an individual and not as an individual entrepreneur, the Supreme Court stated the following: "individual entrepreneur" and "individual" have different legal status, including in the field of taxation.

An individual who wishes to exercise his or her constitutional right to entrepreneurial activity, after passing the relevant registration and other procedures provided for by law, under no circumstances loses or changes his or her status as an individual, which he or she acquired from the moment of birth, but only acquires a new feature - an entrepreneur. It should be noted that the acquisition by an individual of the legal status of "individual entrepreneur" is not a restriction of such a person's constitutional rights to freedom of entrepreneurship, but primarily the acquisition of a legal status that certifies the right of this person to engage in independent, initiative, systematic, at their own risk economic activity in order to achieve economic and social results and make a profit.

The Supreme Court noted that the legal status of "individual entrepreneur" in itself does not in any way limit any rights of an individual arising from his or her civil law and legal capacity.

That is, an individual being in the status of a business entity may enter into contractual relations on his/her own behalf as an individual, however, the following should be taken into account: when an individual carries out business activities it is necessary to clearly distinguish in which relations an individual acts as an entrepreneur and in which - as an individual.

In this case, a set of consistent and purposeful actions of the plaintiff to sell real estate (the courts found that the plaintiff sold twenty-three houses) should be qualified as systematic entrepreneurial activity.

At the same time, the mere fact of signing the said real estate sale and purchase agreements without specifying the plaintiff's status as an entrepreneur does not prove that such transactions are not related to entrepreneurial activity.

The Supreme Court also noted that the courts in matters of taxation should proceed from the fact that the absence of a person's relevant legal status in such legal relations due to neglect of such legal requirements and the lack of a legal mechanism of coercion cannot serve as an obstacle to the application of the taxation rules established by Article 177 of the Tax Code of Ukraine to the income received by the plaintiff, since the legislator, when formulating the content of Article 177 of the Tax Code, taking into account the general legal principle of good faith, could not have foreseen such an illegal behavior.

Such behavior of a person indicates that such person creates conditions that cannot be aimed at anything other than non-compliance with the requirements of tax legislation (in particular, avoidance of tax liability). Such conditions may be created at any stage of business activity, even before its actual commencement. In fact, the person thus artificially creates conditions for the non-application of the requirements of Article 177 of the TCU on the procedure for taxation of income from business activities of individual entrepreneurs. Such actions are committed deliberately, their purpose is to fail to fulfill the tax obligation by minimizing tax liabilities for personal income tax and VAT and, in accordance with paragraph 109.1 of Article 109, are qualified as illegal acts.

In view of the above reasoning, the panel of judges agrees with the conclusion of the court of first instance that in this case the plaintiff's activities for tax purposes should be qualified as entrepreneurial, he should be subject to legal consequences as a person with the status of "individual entrepreneur", which leads to the application of the taxation rules established by Article 177 of the Tax Code of Ukraine to the income received by the plaintiff, and the formal failure of the plaintiff to indicate the relevant legal status within the disputed legal relations, provided that there is a legal status of "individual entrepreneur", is not considered to be illegal.

Therefore, the Administrative Court of Cassation of the Supreme Court of 07.03.2024 in case No. 480/293/20 upheld the cassation appeal of the Main Department of the State Tax Service in Sumy region; the decision of the Second Administrative Court of Appeal of 05.11.2023 was canceled; the decision of the Sumy District Administrative Court of 17.11.2021 was upheld.

According to the case file, the individual sold more than 20 real estate objects.


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