Legitimate Tax Optimization
Tax optimization is legal and legitimate, if, despite gaining any advantage regarding tax or levies, the state cannot impose any sanction for such optimization. What are the cases?
Cases of Tax Optimization
The simplest example of tax optimization is the choice of legal form of business.
An entrepreneur may, before starting any business activity, face the question whether to conduct business as a sole entrepreneur or through an s.r.o. Both options are linked to other tax and levy consequences and the entrepreneur can decide, based on estimated calculations, which of the two legal forms will result in lower taxes or levies. In this case, it is a decision solely driven by tax or levies optimization, yet the state cannot penalize this decision and the subsequent savings on taxes and levies.
High Volume Transaction
One of the bigger transactions may be, for example, the legitimate choice of legally selling an enterprise. In principle, the law allows for two forms of sale, namely: (i) the sale of the enterprise and (ii) the sale of the company. Both forms of sale are associated with different tax impacts, and the taxpayer may choose the form that is most effective from the tax perspective. Even though this decision can save millions of euros at the expense of the state, the state cannot want the taxpayer to choose the legal form of sale triggering higher tax duty.
Legitimate and Illegitimate Tax Optimization
Of course, the issue of legitimate or illegitimate tax optimization is very complex, and the above cases could be modified to test the boundary between legitimate and illegitimate, or tax optimization where the taxpayer can be subject to a fine and vice versa. Generally speaking, it is necessary to consult a tax lawyer experienced in the constitutional law as well, each structure that is being set, even for a “single-member s.r.o.”. Otherwise, the measure can be technically correct, but at the same time illegitimate and therefore illegal.