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Problems of jurisdiction in disputes involving a self-employed individual as a special subject of economic activity with an undefined legal status

Shapsugova Marietta Damirovna

PhD in Law

Senior Scientific Associate, Institute of State and Law of the Russian Academy of Sciences

119019, Russia, Moskva, g. Moscow, ul. Znamenka, 10

shapsugova@gmail.com

DOI:

10.25136/2409-7136.2021.2.35014.2

Review date:

07-02-2021


Publish date:

14-02-2021


Abstract: Due to proliferation of the experiment on introduction of special self-employment tax regime across the Russian Federation, the number of self-employed individuals is expected to rise. Moreover, the lockdown brought on by the current pandemic led to a sharp increase in self-employment. This circumstance makes the subject of this research more relevant – the questions of legal status of self-employed individuals in connection to their financial-legal and procedural-legal aspects. The article analyzes the doctrinal approaches towards definition of jurisdiction, the use of which allows overcoming current legislative gap. Research is conducted on the normative act and case law of the Constitutional Court of the Russian Federation that forms the conceptual approach towards self-employment. For the first time, the activity of a self-employed individual is examined in relation to the concepts of economic, entrepreneurial, and professional activities. The problem of undefined procedural status of a self-employed individual is explored in conjunction with its undefined status in the substantive law. A conclusion is made that such activity should be classified as economic. The scientific novelty consists in posing the question of jurisdiction of disputes involving self-employed individuals. The author concludes on undefined nature of self-employed individual in the substantive law, which leads to legal uncertainty of their procedural status. The uncertainty is expressed in the absence of rules of jurisdiction over disputed involving self-employed individuals. The author makes proposal for changes to procedural legislation.


Keywords: arbitration process, civil procedure, entrepreneurial activity, professional activity, economic activity, professional income, procedural status, self-employed, economic disputes, hired labour

The emergence of self-employment in the structure of economic entities generates specific theoretical and practical problems in the economic nature of their activities, legal status, legal regime of transactions, liability for obligations, and jurisdiction of disputes involving them. Regarding the material and legal status of self-employed persons, there are works by scientists I. V. Yershova, M. I. Kleandrov, G. A. Titov, O. V. Chesalina, G. F. Ruchkina, and others, at the same time, studies of their procedural status have not yet been conducted. Thus, the proposed article, for the first time, examines the procedural status of self-employed citizens in its correlation with their material and legal status and the specifics of their activities.

The designated topic is characterized by a gap, which anticipates the problems of law enforcement practice that may arise in the near future.

The search for solutions lies in understanding the concept of self-employment, the economic and legal nature of its activities, the definition, and the specification of the jurisdiction of the arbitration courts and courts of general jurisdiction.

First of all, it is necessary to analyze the concept of self-employment, which, in a sense, has become commonly used. Self-employment traditionally includes self-employed persons such as freelancers, lawyers, arbitration managers, individual entrepreneurs, notaries, etc. They carry out both entrepreneurial and other income-generating activities, with or without the use of hired labor.

This understanding of self-employment can be called broad. It should also be mentioned that in the well-known Ruling of the Constitutional Court of the Russian Federation of 29.05.2014 No. 1116-O On Refusal to accept for Consideration the Complaint of Citizen Alekseyev Alexander Nikolaevich in Violation of his Constitutional Rights by certain provisions of Articles 6, 7, and 28 of the Federal Law On Compulsory Pension Insurance in the Russian Federation, as well as Articles 5 and 14 of the Federal Law On Insurance Contributions to the Pension Fund of the Russian Federation, the Social Insurance Fund of the Russian Federation, the Federal Compulsory Medical Insurance Fund, it was mentioned that individual entrepreneurs, as self-employed citizens, carry out their freely chosen professional activities on the principles of autonomy and property independence. However, this legal position was put forward before the introduction of the Federal Law On Conducting an Experiment to Establish a Special Tax Regime "Professional Income Tax" in the federal city of Moscow, in the Moscow and Kaluga Regions, as well as in the Republic of Tatarstan (Tatarstan) (hereinafter – the professional income tax law) of 27.11.2018 No. 422-FZ. The taxpayers are individual entrepreneurs and individuals who are not registered in this capacity. It is in this narrow sense that the term "self-employed" will be used in this article.

The relevance of the studied problems is aggravated due to several factors.

First, Federal Law No. 101-FZ of 01.04.2020, On Amendments to Article 1 of the Federal Law On Conducting an Experiment to Establish a Special Tax Regime "Professional Income Tax" [1] allows us to establish this special regime based on the laws of the subjects. It should be noted that at the time of writing, all subjects of the Russian Federation have joined the experiment on the introduction of a special tax regime, "Professional Income Tax" [2]. This means that the number of disputes involving self-employed persons will grow exponentially.

Secondly, in connection to the introduction of amendments to the legislation on procurement by certain types of legal entities, self-employed citizens were actually equal in status to small and medium-sized businesses [3]. Thus, the concept of self-employed activity is transformed from an income-generating activity (within the meaning of the professional income tax law) to entrepreneurial activity.

Third, the coronavirus pandemic has acted as a catalyst for the growth in the number of self-employed.

We believe that the subject of entrepreneurial activity civil law regulation, as a relationship between persons engaged in entrepreneurial activity or with their participation, enshrined in Article 2 of the Civil Code, is the source of the problem under consideration. As a general rule, such persons must be registered in this capacity in accordance with the procedure established by law, unless otherwise provided for by the Civil Code of the Russian Federation (Article 2 of the Civil Code) [4, p. 68]. At the same time, Article 23 of the Civil Code, in its current version, provides the possibility for a citizen to carry out such activities without state registration as an individual entrepreneur in relation to certain types of business activities, the list of which is established by law.

Obviously, on the one hand, the diverse norms of public and private law regulating the activities of self-employed persons are not in harmony with each other [5, p.26–41]. On the other hand, the activity of the payer of professional income tax under the current legal regulation does not correspond to the signs of entrepreneurship.

The absence of a definition of self-employed activity as entrepreneurial or economic in substantive law leads to a gap in the legal regulation of disputes involving self-employed citizens, including the possibility of extending the jurisdiction of courts of general jurisdiction. At the same time, obtaining the status of being self-employed (payer of professional income tax) by an individual entrepreneur is permissible by law. This provision marks a dissonance in this picture.

As M. I. Kleandrov, a corresponding member of the Russian Academy of Sciences, notes in his work, "unregistered entrepreneurs have no access to arbitration courts or courts of general jurisdiction" [6]. This situation persisted until the legalization of self-employment through the professional income tax law and amendments to Article 2 of the Civil Code of the Russian Federation. Legalization has given rise to a new problem of the jurisdiction of disputes involving them due to the lack of rules in the procedural legislation defining the jurisdiction of disputes involving self-employed persons.

In the doctrine of procedural law, the jurisdiction of disputes is determined based on the subject and nature of the dispute, as well as on the subject criterion [7].

When determining the jurisdiction area under study, you can not be guided by only one of the listed criteria.

Economic disputes and cases related to the implementation of entrepreneurial and other economic activities are subject to arbitration courts (Part 1 of Article 27 of the Agribusiness Code). Such wording indicates the criterion of the nature and subject of the dispute.

The procedural arbitration legislation recognizes business activity as a type of economic activity. The above suggests the study of the concept of entrepreneurial and economic activity.

Under economic activity, it is customary to understand such a person's type of economic activity, their form of participation in social production, the purpose of which is to provide financial support for life [8, p.16]. Analyzing this concept, we can deduce its essential features. The subject of economic activity, according to the author of the concept, is a person. We believe that this understanding is narrow as economic activity can also be carried out by other economic entities: the state and organizations [9, p.24]. Therefore, the use of the concept on the subject of economic activity in this context is preferable. In addition, the attribute of economic activity as a form of social production can be criticized as production is only one of the stages of social production. Economic activity is carried out at the stage of distribution, exchange, and consumption. In addition to the above, the author of the definition identifies the target feature of support for life. The economic approach to understanding economic activity assumes its focus on meeting the needs [9, p. 26] at the final stage of social production – consumption.

At the same time, economic activity is understood as the economic activity of individuals and organizations within the framework of commodity-money exchange, based on the possession, use, and disposal of goods to meet material needs [10, p.16]. This approach restricts the implementation of economic activity to the stage of exchange, which does not correspond to the economic essence of this phenomenon, as mentioned above. Still, it takes into account the orientation of economic activity to meet material needs.

Given the above, we believe that it is possible to define economic activity as the activity of economic entities carried out in the process of social production aimed at satisfying material needs.

In accordance with Article 2 of the Civil Code of the Russian Federation, entrepreneurial activity is an independent activity carried out at its own risk, aimed at systematically obtaining profit from the use of property, the sale of goods, the performance of works, or the provision of services. Persons engaged in an entrepreneurial activity must be registered in this capacity under the procedure established by law unless otherwise provided by the Civil Code of the Russian Federation [4, p. 68].

In light of the amendments made to Article 23 of the Civil Code of the Russian Federation in relation to certain types of entrepreneurial activity, the law may provide conditions for citizens to carry out such activities without state registration as an individual entrepreneur. According to the professional income tax law, the activity of self-employed persons is not recognized as entrepreneurial, but legal reference systems [11] refer to the professional income tax law; that is, self-employment is considered an example of citizens' business activities that do not require registration. It should be noted that this indication is not a scientific argument in favor of attributing self-employment to business activities carried out without registration. Even though it is due to the convenience of searching for information, it nevertheless unwittingly creates the illusion of the entrepreneurial nature of self-employment among users.

The law does not classify the activity of a payer of professional income tax as entrepreneurial, highlighting that it features the absence of an employer in its conduct, the prohibition on hiring employees under employment contracts, as well as the marginal income received from the use of property. At the moment, it is an intermediate phenomenon between wage labor and entrepreneurship. Some misunderstandings of certain self-employment specifics, regulated by the professional income tax law, may arise in relation to individual entrepreneurs, as a general rule, engaged in entrepreneurial activities. Following the meaning of this law, we conclude that an individual entrepreneur can carry out both business activities using the available tax system and special tax regimes of the UTII (until its abolition from 2021, the USN) and activities that generate income under the professional income tax law. G. A. Titov draws attention to the lack of clear criteria in distinguishing the activities of self-employed persons and individual entrepreneurs [12], O. V. Chesalina notes the blurring of the line between wage labor and self-employment [13], and G. F. Ruchkin notes the need for further improvement of the self-employment taxation and social insurance system [14].

Thus, the position formulated in the Letter of the Ministry of Labor of the Russian Federation of 03.03.2020 N 16-1/B-87 seems erroneous, that the definition of a "self-employed citizen" as an entity engaged in income-generating activities and not registered as an individual entrepreneur is reflected at a formal legal level. This definition allows us to determine that the concepts of "entrepreneurship" and "self-employment" are essentially the same root concepts. At the same time, it should be noted that this letter is not a normative legal act as it was not registered by the Ministry of Justice of the Russian Federation and officially published in accordance with the established procedure for such acts.

The distinction between wage labor and independent economic activity, based on the recognition of the social nature of the Russian state, was made by the Constitutional Court of the Russian Federation in its Decision No. 10-P of 23.04.2012. "In the case of checking the constitutionality of the tenth paragraph of Article 2 of the Law of the Russian Federation On Employment in the Russian Federation in connection with the complaint of a citizen E. N. Ehrlich." It distinguishes two types of employment: wage labor and independent economic activity, through which a citizen can exercise their constitutional guarantees, such as freedom of work and the right to freely dispose of their abilities to work, choose a type of activity and profession, and the right to protection from unemployment (Part 1 and 3 of Article 37), as well as the right to freely use their abilities and property for entrepreneurial and other economic activities not prohibited by law (Part 1 of Article 34).

Since self-employment does not apply to activities under an employment contract, and it does not relate to entrepreneurship, it should be recognized that such activities, according to the terminology of the Constitutional Court of the Russian Federation, are "independent economic activities aimed at generating income" (Resolution of the Constitutional Court of the Russian Federation No. 10-P of 23.04.2012).

By virtue of the very name of the special tax regime, "Professional Income Tax," it can be assumed that the activities of self-employed persons can be considered professional.

The analysis of the definition of professional income given in Article 2 of the professional income tax law leads to the conclusion that the signs of professional activity, in the understanding of the legislator, are the absence of an individual employer and employees under employment contracts, as well as activities that generate income from the use of property. However, it is unlikely that such signs define the activity as professional.

We believe it is necessary to turn to the theoretical and legal positions that reveal the concept of professional activity.

Research on professional activity through the prism of self-regulation is interesting.

In the concept of self-regulation, given in Article 2 of the Federal Law On Self-Regulating Organizations of 01.12.2007 No. 315-FZ [15] (hereinafter – the law on SRO), both entrepreneurial and professional activities are mentioned, but their distinction is not made.

To L.A.Sungatullina, the legal characteristics of professional activity include its implementation by individuals, the social significance of such activities, the confirmation of the performer's competence by the presence of a diploma, the paid nature of the activity, the mandatory fixing of the requirements to the contract in the implementation of professional activity, the inclusion of subjects of professional activity in a special register [16, p. 10].

The profession itself is the main feature of professional activity. Obtaining a profession involves the passage of special professional training, culminating in the receipt of a document confirming the qualification.

In the case of self-employment, it is often a question of a set of skills, knowledge, experience. It should be noted that the law on non-professional income tax does not impose qualification requirements on payers of this tax.

Thus, we can agree with I. V. Yershova that the generic concept in relation to the concepts of "entrepreneurial activity" and "professional activity" is "economic activity" [17, p.46–61].

Returning to the problem of jurisdiction, we note that arbitration courts resolve economic disputes and consider other cases involving organizations that are legal entities, citizens who carry out business activities without forming a legal entity and have the status of an individual entrepreneur acquired in accordance with the procedure established by law, and in cases provided for by the Agro-Industrial Complex and other federal laws, with the participation of citizens who do not have the status of an individual entrepreneur (Part 2 of Article 27 of the Agro-Industrial Complex, subject criterion).

The gap arises in relation to self-employed persons who do not have the status of an individual entrepreneur as the arbitration legislation does not provide for the arbitration courts to consider disputes involving them.

At the same time, the approach of different jurisdictions of disputes involving self-employed persons with and without the status of an individual entrepreneur is illogical.

The absence of a direct mention in the Agribusiness Code of the Russian Federation of self-employed persons without the status as an individual entrepreneur creates legal uncertainty, which forms the basis for the approach to the consideration of disputes with their participation in courts of general jurisdiction.

In accordance with Article 22 of the Civil Procedure Code of the Russian Federation, courts of general jurisdiction consider and resolve lawsuits involving citizens, organizations, state authorities, and local self-government bodies for the protection of violated or disputed rights, freedoms, and legitimate interests in disputes arising from civil, family, labor, housing, land, environmental, and other legal relations.

Consideration of economic disputes does not fall within the competence of courts of general jurisdiction (Part 3. Article 22 of the Civil Code of the Russian Federation).

In addition, it is possible to single out the problem of the jurisdiction of disputes involving self-employed persons. Despite the status of an individual, the professional income tax law provides for the main reference to the place of business and not the place of residence. This problem may be caused by the following factors.

Self-employed persons carry out the activity in several regions. Thus, according to the rules set out in Part 3 of Article 2 of the professional income tax law, if a taxpayer operates in several regions, he has the right to independently determine the principal place of business for the purpose of paying tax. Can this choice be extended to the rules for determining jurisdiction, or should the rule of residence apply?

Activities are carried out remotely, for example, tutoring via the internet. The consumer of their service can be a resident of another city, region, or country. The service itself is provided in the virtual space. The professional income tax law does not regulate the procedure for determining the place of activity in the remote provision of services.

Considering the mentioned changes in the procurement legislation, the activities of self-employed persons may eventually transform into entrepreneurial ones.

The possibility of future application of legislation on consumer protection, providing for alternative jurisdiction in disputes on consumer protection at the place of residence of the plaintiff or the location of the defendant.

Summing up the above, we come to the following conclusions.

First, noting the gap in the legal regulation of the jurisdiction of disputes involving self-employed citizens, the number of which is growing every day, we believe that the legislator should pay attention to the need to create conditions to be able to exercise the right to judicial protection [18] as this kind of uncertainty leads to a violation of the constitutional rights of both self-employed citizens and their counterparties.

Secondly, the problems presented are both theoretical and practical in nature and can be solved based on the answer to the fundamental question of whether a self-employed person's activity is economic in nature and disputes involving their participation are economic. Or if we are talking about ordinary civil obligations of individuals, disputes that are considered in the courts of general jurisdiction.

The third conclusion follows from the previous two. From a formal legal point of view, disputes involving self-employed persons can be attributed to the jurisdiction of courts of general jurisdiction. However, from the point of view of the phenomenon's essence, the self-employed persons' activities are still economic in nature. Turning to the doctrinal criteria of the jurisdiction of disputes, we believe that the criterion of subject composition in the case of disputes involving self-employed persons cannot be considered separately from the criterion of the nature and subject of the dispute. For this reason, this category of disputes, in our opinion, still belongs to the jurisdiction of arbitration courts. However, the criterion concerning the merits of the dispute should also be applied. So, for example, if the law on consumer protection applies to transactions involving self-employed persons, such disputes, as well as individual claim disputes, should be considered in the courts of general jurisdiction.

The accumulated array of legal norms, together with the lack of a common approach to understanding self-employment, require creating a conceptual legal model surrounding self-employment in Russia at the level of principles that can be used as a basis for making legislative decisions and law enforcement practice in the future.



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