It is difficult for lawyers to simplify – Kommersant

The Supreme Court of the Russian Federation (SC) admitted that a lawyer can be an individual entrepreneur (IP) and apply the simplified taxation system (STS), but the type of activity that he conducts must be taken into account. If legal services cannot be a business for a lawyer, then other areas of commerce are not expressly prohibited to them, however, some of them may be contrary to the community code of professional ethics. Lawyers say that, in general, the decision of the Supreme Court was made in favor of lawyers, although due to “evasive motivation” it is impossible to draw unambiguous conclusions about its consequences.

The Supreme Court resolved the dispute about the right of a lawyer to be an entrepreneur and apply the simplified tax system (.pdf). Lawyer Vsevolod Sazonov registered as an individual entrepreneur in October 2021 and decided to switch to a “simplified system”, but the tax office refused him. Mr. Sazonov challenged the decision of the tax authorities.

Arbitration courts of three instances supported the Federal Tax Service, deciding that a lawyer cannot “simultaneously be an individual entrepreneur”, respectively, does not have the right to the simplified tax system (see “Kommersant” dated April 7).

In particular, the courts referred to the decision of the Supreme Court of April 2022, which recognized the letter of the Federal Tax Service of November 2, 2020 on the impossibility of applying the “simplification” by lawyers as legitimate.

Vsevolod Sazonov complained to the Supreme Court, believing that the Tax Code of the Russian Federation (TC) contains a ban on applying the simplified tax system only in relation to income from advocacy. And if he conducts entrepreneurial activities that are not related to the provision of legal assistance, then he has the right to apply the “simplification”, the complaint says. The case was referred to the Economic Collegium of the Armed Forces, which overturned the decisions of the courts.

Firstly, the collegium declared the courts’ references to last year’s decision of the Supreme Court as “insolvent”, pointing out that these are different issues: then it was about “the possibility of using the simplified tax system by lawyers who established a lawyer’s office”, and now it’s about the right to apply the “simplification” for entrepreneurs, who conduct activities not related to legal services, but at the same time have a lawyer status. That decision did not say anything about restrictions for citizen lawyers to apply the simplified tax system in relation to non-lawyer activities, the Supreme Court added. The Collegium also recognized as incorrect the conclusion of the courts that a lawyer cannot be an individual entrepreneur because of the lawyer’s code of professional ethics. The issue of compliance by a lawyer with the requirements of the Code of Ethics “is not the subject of consideration in this dispute and is not within the competence of the tax authorities and courts”, this should be dealt with by the council of the regional bar association, the Supreme Court stressed.

At the same time, the board refused to put an end to the case, sending the dispute for a new consideration: the courts must find out “from what type of activity the applicant plans to receive income taxed under the simplified tax system” and establish the circumstances of the violation by the tax authorities of the rights and interests of Vsevolod Sazonov.

The question of the right of a lawyer to engage in entrepreneurial activity is still debatable.

Now the code of professional ethics allows other paid activities for a lawyer, if it does not involve the use of his lawyer status. “But, despite the introduction of amendments to the code of ethics in 2017 and the exclusion from it of provisions prohibiting lawyers from being personally involved in the process of selling goods, works and services, there was no consensus on this matter even within the legal community,” says senior lawyer BGP Litigation Daniil Zakharov. In this regard, lawyers and lawyers were looking forward to the decision in the case of Vsevolod Sazonov.

The Supreme Court rightly noted that there is no ban on the status of individual entrepreneurs and the use of the simplified tax system for lawyers in the Tax Code, and restrictions apply only to those citizens who have established a lawyer’s office, says Taxology partner Alexei Artyukh. At the same time, the Supreme Court left unanswered the question of whether the conduct of entrepreneurial activities by a citizen-lawyer complies with the law on advocacy and the code of ethics, Case by Case lawyer Yulia Mikhalchuk notes. It is also unclear whether “a lawyer’s education, for example, a bureau, can engage in entrepreneurship that is not related to advocacy,” although this is also an urgent issue, says Egor Kovalev, a lawyer for KA Delcredere.

According to Aleksey Artyukh, not every activity is compatible with a lawyer, but receiving income, for example, from scientific or educational activities will not violate professional ethics.

Ms. Mikhalchuk considers it possible for a lawyer, among other things, to rent out commercial real estate or open a shop, for taxation of income from which one could apply the simplified tax system.

According to Daniil Zakharov, the position of the Supreme Court “allows us to say with greater confidence that lawyers have the right to have the status of an individual entrepreneur and apply the simplified tax system,” but “the court still did not express an unambiguous position” and “did not give a full green light.” Moreover, Mr. Kovalev admits that at the new consideration of the case, “the courts may find other grounds for refusing to apply a simplified procedure to a lawyer.” Mr. Zakharov is also embarrassed by the indication of the Supreme Court on the need to establish the type of activity: “Won’t lawyers have to prove to the courts and tax authorities every time what kind of business they planned to do in order to register them as individual entrepreneurs? Time will show”. According to Yegor Kovalev, in order to avoid disputes, it is necessary to adjust the norms of the Tax Code, as well as clarifications from the Constitutional Court.

Ekaterina Volkova, Anna Zanina