The Minister of Finance has replied to questions arising from Parliamentary debates on the Certificate of Employment (“VAR”). In so doing, an important commitment to principals whose good faith has been abused by incorrect VAR declarations, has been made.
Any taxpayer seeking certainty on how their income from certain employment relationships qualify for taxation, can ask the Inspector to issue a Certificate of Employment (“VAR”). Such income can be considered as profit from a business (“VAR-profit”), salary from an employment relationship (“VAR-salary”), or income from other activities (“VAR-IOA”). A director-major shareholder (“DMS”) can also be considered for a VAR-DMS for the work he or she carries out on behalf of his / her company. The fee for this work is then attributed to the company and not directly to the DMS.
A VAR is also important to the principal in that a VAR-IOE or VAR-DMS offers the principal the security of not having to deduct and remit payroll tax and social security contributions, employee insurance contributions and the income-linked contribution under the Health Insurance Act for the relevant work. On the other hand, a VAR-salary or a VAR IOA does not offer complete security as the principal must establish whether the work qualifies as salaried employment. If so, the principal must deduct and remit all of the relevant payroll tax and social security contributions.
Many principals believe, incorrectly, that if the contractor has a VAR-DMS, this covers all tax risks. They let the fact that the VAR-DMS does not offer indemnity for any liability on the grounds of recipient's liability or vicarious liability pass them by. If the contractor's company does not meet its tax obligations, the Dutch Revenue can hold the principal ultimately liable for any payroll tax, social security contributions, and VAT that has not been remitted by the contractor.
The conclusion must be drawn that a principal is running the risk of being held liable on the grounds of recipient's liability or vicarious liability if he or she calls on the services of a self-employed person with a VAR-DMS.
The principal runs no risk of being held liable under recipient's liability if the contractor runs his or her company as a sole trader, or as a partnership, for example. Entrepreneurs with a VAR-profit are after all, not employed by their business, whilst a DMS is employed by his or her business for payroll tax purposes.
What can be done in situation where the principal believes that there is no risk of liability because the contractor has supplied either a VAR-profit or a VAR-IOA, whereas if the contractor had completed the application form correctly, this should have been a VAR-DMS? In his reply to questions arising from Parliamentary debate, the Minister of Finance promised that principals who have relied, in good faith, on an incorrect VAR declaration, will not be held liable on the grounds of recipient's liability or vicarious liability. In order to make matters completely clear, this promise will be included in the Guidelines for Implementation. This exemption will only be valid if the principal has acted in good faith. It is remarkable that, in answering the questions arising from Parliamentary debate, the Minister has not defined when a principal should be considered as having acted in good faith.