As we outlined in our Newsletter on October 25, 2023, the Caixa Andorrana de Seguretat Social (CASS) has decided to review the contribution rates for self-employed workers in the Principality of Andorra.
For this purpose, as the competent authority in this matter, CASS must analyze the relevant data to determine the corresponding contribution rates in accordance with Law 17/2008 of October 3, on Social Security. These data include, on one hand, the turnover of companies where a self-employed individual holds an administrative position, and on the other hand, their personal income.
In this regard, CASS has relatively easy access to the turnover figures of taxpayers through the accounting deposited with M.I. Govern (Dipòsit de comptes) and thanks to the declaration of Corporate Income Tax with the tax administration (Dept. de Tributs i Fronteres).
Therefore, CASS can accurately determine in advance whether a taxpayer should contribute at 125% of the contribution base instead of 100% (as this increase applies in cases where the turnover of the company managed by the self-employed individual exceeds €400,000 or when the net personal income from economic activities exceeds €40,000).
In the 125% bracket, the criteria are disjunctive (one or the other applies), so CASS relatively has less difficulty in avoiding errors in cases where the turnover of the company managed by the self-employed individual exceeds €400,000 since it is no longer necessary to determine the personal income of the self-employed individual to make the necessary correction by requesting the unpaid amounts for the current year and the previous years, and applying the relevant surcharges and interest (as it has been doing since this summer for hundreds of self-employed individuals in the country in a generalized manner).
However, the problem lies in determining income or profits from economic activities on a personal basis, especially for companies with turnovers not exceeding €400,000 but where the self-employed individual can generate more than €40,000 (in the case of the 125% contribution). This is especially challenging for cases where it is necessary to cumulatively generate over €500,000 in net income from economic activities of the company and more than €50,000 as net income from personal economic activities (the scenario for the 137.5% contribution).
In such cases, CASS is basing its analysis on the income tax returns of self-employed taxpayers, counting all income not subject to CASS contributions as part of the income considered for the determination of these €40,000 or €50,000 (without conducting a more detailed analysis of the types of income involved). In our legal opinion, although this interpretation is understandable given that it is the only source of information available to them, we consider it incorrect because it assumes that all income not subject to contributions is, by default, remuneration for actual work performed for the administered company).
As a result, the administration is considering all types of income not subject to CASS contributions because they are not differentiated in the income tax return from remuneration for actual work in the company where one is an administrator. In fact, the precise data required by CASS to make this distinction cannot be obtained without consulting the company’s accounts in detail.
Therefore, in the absence of a declaration by the self-employed professional before July 31 of the following year in which these earnings were generated (a strange and inoperative date from a legislative policy perspective, as the voluntary period for declaring income tax expires on September 30 and that of Corporate Income Tax on July 31), CASS uses all income not subject to CASS contributions to determine net income from economic activities on a personal basis, putting the taxpayer in a delicate position, as the income for which they are exceeding €40,000 or €50,000 and which are generating a correction of the contribution rate at 125% or 137.5% may not be entirely income from their actual work linked to the administered company/companies. Consequently, CASS may be acting contrary to the law without being aware of it in some specific cases by obtaining information from the wrong source or in a non-discriminatory manner.
This issue could be easily resolved by notifying the taxpayer in the form of a verification so that they could differentiate the nature of the income, without generating an administrative act against the taxpayer demanding overdue contributions that are not due, in addition to the penalties and interest associated with them.
At Augé Legal&Fiscal, a legal subsidiary of Augé Holding Group, we have lawyers and economists who are experts in labor law and social security regulations, as well as in handling administrative procedures. If you find yourself in the described situation, please do not hesitate to contact us so that we can assess whether the CASS correction proposal complies with regulations and, if not, assist you in administrative appeals and any subsequent recourse against this institution.
If you are not in this situation, we will also be happy to assist you through our subsidiary Augé Accountants in determining your correct contribution rate for past, present, and future fiscal years.