Enforcement of The Deregulation of Assessment of Independent Contractor Status Act postponed until 1 January 2018 (DBA Act)

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Background

Since the abolition of the VAR (Declaration of Independent Contractor Status) on 1 May 2016 there has been a great deal of disquiet and uncertainty among clients and the contractors/self-employed regarding the DBA Act.

Recent developments

On the advice of the Boot Commission, the State Secretary for Finance is extending the period during which clients and contractors can assess and further determine their employment relationship, without enforcement measures being taken by the Tax Authorities. This period was to end on 1 May 2017 but is now being extended until 1 January 2018.

The extension of the adjustment period will give the cabinet the time to review the “free replacement” and “authority relationship” criteria, as recommended by the Boot Commission. In practice, it is significant that the extension of the adjustment period offers room to await development. The State Secretary also appears to have adopted the recommendation of the Boot Commission in his Second DBA Progress Report to Parliament only to impose an additional tax in the event of fraud or an obvious anomaly. In this regard, the State Secretary has defined when there is a question of “parties acting in bad faith”: “A client or contractor who deliberately allows a situation of evident fictitious self-employment to arise or continue is acting in bad faith because he knows - or could have known - that there was in fact a question of an employment relationship (and he therefore gains an improper financial advantage and/or affects the playing field in an improper manner).”

Our comments

It is good to realise that the extension of the adjustment period does not mean that clients and contractors can now just do nothing.  The VAR has been and remains abolished, nor is the Boot Commission arguing for it to be re-introduced from an employment law perspective.

However, the Boot Commission is concerned about the practical problems in current practice.  A full employment law assessment, as is (also) required by the Supreme Court of the Netherlands, will in practice hinder the desired clarity in advance.  A new balance will have to be created between employment law rules and the necessary taxation efficiency.

Furthermore, the State Secretary has announced a policy decision in order to offer clarity about the manner in which the Tax Authorities deal with the system of model agreements.  The cabinet wishes to hurry this up and hopes to achieve results before a subsequent coalition agreement.

We regret the fact that the Boot Commission has not dealt with the effect on the assessment of the employment relationship involved in entering into a contract with the contractor's own private limited company (B.V.).

In our opinion, the practical application should not be put "on hold" while awaiting developments.  In most situations there are sufficient reference points to be able to decide whether or not to make use of a model agreement.  If this is necessary, then it is possible to look at the type of agreement that can be concluded by the client and the contractor.  Also the scale of the work and the amount of the payment could provide an indication of whether there is a question of an employment relationship from a taxation point of view.  We will be pleased to go through the possibilities with you.

Further information

For further information or to discuss any of the issued raised, in the first instance please contact Rina Driece (Rina.driece@loyensloeff.com) on +31 (10) 224 64 24.  She will put you in touch with our specialist advisers as follows:

Taxes
Ralph Ferouge (Amsterdam)
Frank Dekker (Rotterdam)
René Sueters (Arnhem)
Esther Jalink (Arnhem)

Employment law
Klaas Wiersma (Amsterdam)
Edith Franssen (Rotterdam)

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