Payment of unified social contribution by employed advocates: Supreme Court’s view

In a 5 November ruling on the unified social contribution by advocates, the Ukrainian Supreme Court found that double payment of the contribution by employers and individual advocates (who are both employed and practising individually) contradicts the purpose of the contribution.

Background

According to Ukrainian legislation, individual advocates must pay the unified social contributions at the rate of 22% of their income, but not less than the minimum insurance payment, which is 22% of a minimum wage. For the significant number of individual advocates who are also employed, the employer assesses and pays the unified social contribution for them. As a result, many of these advocates naturally expected that they should not be required to pay unified social contributions for their individual practices.

Tax authorities, however, have maintained that employed individual advocates must pay the unified social contribution for their individual practices even when they receive no income. For this reason, in practice, many employed advocates pay the unified social contribution as individual advocates while their employers pay this contribution for them as employees. Those advocates, who refrain from paying individual contributions, have received demand notes from tax authorities that their contributions are in arrears.

In the case brought to the Supreme Court, an advocate in this situation had appealed the demand for payment of the unified social contribution served on him.

The claimant was employed at a state-owned enterprise and at the same time occasionally pursued activity as an independent advocate. During the advocate’s employment, the state-owned enterprise paid the unified social contribution on behalf of the claimant, while the claimant additionally paid the same contribution on the amount of occasional income from this independent activity.

At a certain point, tax authorities requested that the claimant pay the outstanding unified social contribution for the period when he did not have an income from his independent activity.

Supreme Court decision

The Supreme Court’s ruling that double payment of the unified social contribution by the employer and an individual advocate (not receiving a consistent income from a private practise) contradicts the purpose of the unified social contribution is in line with the Court’s judgements in cases No. 160/3114/19, No. 260/358/19, No. 480/4656/18, and No. 440/5632/18.

Notably, Ukrainian lawmakers have already responded to this lacuna and enacted legislation on the unified social contribution, which exempts employed advocates from payment of the unified social contribution in their private practices for those months in which their employer made contributions on their behalf.

While the new exemption, which goes into effect on 1 January 2021, solves the problem in the future, the Supreme Court’s recent judgement sets an important precedent for the past.

For more information on payment of the unified social contribution by employed advocates in Ukraine, contact your regular CMS advisor or local CMS expert: Olga Shenk, Anna Pogrebna and Viktoriia Stavchuk.

Court practice:

Decision of Supreme Court dd. 05.11.2020 in case No. 460/2442/19 (in Ukrainian).