B2B arrangements – a market perspective
B2B arrangements are usually embraced by IT service providers, whether Polish or foreign ones, which seek talents in Poland. This model is again gaining in popularity also because many programmers and IT specialists have relocated to Poland as a result of the war in Ukraine, where this form of cooperation is standard market practice.
B2B arrangements are also attractive to companies operating in private equity environments, where funds invest capital in promising newcomers with potential for growth which they plan to subsequently sell to make a profit. Any potential risk (e.g. a B2B arrangement inadequately implemented) that may be identified during a pre-transaction due diligence assessment and, in consequence, is not unlikely to make potential stakeholders lose interest or the transaction price slump is something they should avoid.
The increasing popularity of contractor arrangements is also lent support by the recent survey EY & GIGLIKE: GIGbarometer. Flexibility Barometer on the job market 2024, in which the respondents declared that B2B arrangements were on the rise compared with the prior year. This rise is particularly noticeable in mid-sized enterprises (57% versus 46% in 2023). The survey also reveals that it is not only employers’ willingness to opt for B2B arrangements that is rising, as so is the level of entrepreneurs’ satisfaction with this model of their cooperation with independent experts.
We forecast that B2B arrangements will continue to grow in popularity, given the announcement to charge social security contributions on personal services contracts in full.
B2B arrangements – a tax perspective
As B2B arrangements are becoming widespread, tax authorities are intensifying their scrutiny of such schemes. Take for example the recent refusal of the Director of the National Tax Administration (KAS) to issue an advance opinion on the planned replacement of employment contracts with B2B arrangements. This proves that tax authorities carefully examine such arrangements in terms of both tax advantages and the artificial nature of the agreements made. For this purpose, they invoke the GAAR which offers a basis for questioning solutions the main goal of which is to derive a tax advantage artificially. Importantly, since 2019 the GAAR has also been capable of being invoked in respect of PIT remitters and if there is no duty to withhold interim PIT, this may be classified as the remitter’s undue benefit.
Another example is where the KAS Director refused to issue an advance opinion to a taxpayer who wanted to make sure that they could, acting as a shareholder and a Management Board member, offer the company the same services they had earlier carried out as an employee, and now as a sole trader. It is also in this case that the KAS Director argued, invoking the GAAR, that the replacement of the employment contract with a B2B arrangement was primarily driven by the intention to generate a tax benefit.
In addition to the GAAR, it is advisable not to underrate the MDR regime, which implemented the requirement to report tax arrangements identified as such. This is because it may turn out that in some circumstances a B2B arrangement might qualify as a tax arrangement that is reportable.
B2B arrangements – an adviser’s perspective and some practical guidance
Tax authorities’ inquiry or even refusal [to issue an advance opinion] in an individual GAAR case does not invariably mean that a B2B arrangement cannot be implemented safely; this type of arrangement is expressly set forth in the law and sanctioned by the freedom of contract set out in the Civil Code. If implemented correctly, it is first of all risk-free from the company‘s and the contractor’s perspectives and, second, contributes to our country being viewed as an attractive market to look for IT talents, specialists, advisers and experts.
However, what is important is to work out a genuine business justification already at an early stage of preparations for a B2B arrangement and make sure that the scheme, once implemented, is aligned with the organization’s B2B policy. These requirements must therefore be factored in by:
- companies/groups that are cooperating or that cooperated with contractors (programmers, specialists, experts, advisers), particularly if a B2B arrangement was implemented prior to 2019;
- companies/groups that consider implementing B2B arrangements with people they have not cooperated with before/persons not on their payroll;
- companies/groups that consider replacing the existing form of cooperation with selected staff members with B2B arrangements.
To ensure that B2B arrangements are risk-free, companies should e.g.:
a) work out a genuine and consistent business justification for each B2B arrangement and document it;
b) carry out regular audits to ensure compliance with the existing law;
c) provide training on evolving regulatory requirements to managers and staff tasked with the implementation of B2B arrangements;
d) set up an internal contractor relationship management function or outsource this function to a professional services provider.
If we look at the KAS Director’s viewpoint, one may ask whether a shift from an employment contract to a sole trader arrangement is feasible at all. The answer is “yes”. Moreover, B2B arrangements may be combined with other forms of cooperation such as appointment or a manager contract. What carries a serious risk is to amalgamate a job carried out for the benefit of a single entity under an employment contract with a B2B arrangement at a time. If implemented defectively, a B2B arrangement is laden with a range of tax risks such as the PIT risk affecting both the organization paying the contractor their fees and the contractor themselves (including interest and the so-called additional tax charge), VAT risk, risk of being held liable under penal fiscal law and penal law for overdue social security contributions on the part of Management and the individuals in charge as well as the risk of defaulting on MDR duties. In addition, if tax authorities challenge a taxpayer’s B2B arrangements, this may also cause reputational damage and generate additional administrative workloads along with litigation costs (the company as a remitter required to adjust many taxpayers’ tax bills).
Summary
To ensure that B2B arrangements are risk-free, they must be implemented correctly and regularly checked to ensure that they remain viable. A B2B cooperation model will not be safe for the company and its non-payroll staff unless it has a commercial justification and is aligned with the company's B2B cooperation policy. If implemented wrongly, a B2B arrangement may carry tax risk, liability under penal fiscal law, reputational damage and extra administrative and litigation costs. It is also advisable to revisit the existing models of cooperation and plan further steps wisely. All these tasks may be entrusted to professionals who will help effectively manage change.
