The bill on the Act implementing the Decision on No Payroll Tax and Social Security Contributions (Wet invoering Beschikking geen loonheffingen), which was published on September 22, 2014 means that the Declaration of Independent Contractor Status (Verklaring arbeidsrelatie; “VAR”) will be replaced by the Decision on No Payroll Tax and Social Security Contributions (Beschikking geen loonheffingen; “BGL”).
The VAR, which is a decision issued by the Dutch tax authorities, is intended to provide clarity on the qualification of the work relationship. The VAR indicates whether a contractor carries on a business (VAR Business Profit (VAR-wuo) or VAR Director-Major Shareholder (VAR-dga)), derives income from other work-related activities (VAR Other Work Income (VAR-row)) or is regarded as an employee (VAR Salary (VAR-loon)). An employer is released from the obligation to withhold and remit payroll tax and social security contributions if a contractor has a VAR-wuo or a VAR-dga.
The four different VARs will be replaced by the BGL. Requests for this decision will be made by way of a web module currently under construction. The BGL is intended to remove the false security that the VAR provides about the tax qualification of the income. This false security arises from the fact that the VAR is issued on the basis of facts and circumstances in the future. It is therefore a common occurrence that the facts and circumstances in practice differ from those in the request. The obligation to report these differences is almost never complied with.
The BGL limits itself solely to assessing whether a withholding obligation for payroll tax and social security contributions is embedded in the work relationship. This means that, unlike the VAR, no qualification (provisional or otherwise) with regard to personal income tax is issued. The BGL therefore says nothing about whether a contractor is eligible for business tax credits. This does not alter the fact that, in the case of a BGL issued on proper grounds, the Dutch tax authorities will not deviate from the qualification of the work relationship when assessing the personal income tax return.
Under the BGL, the principal shares responsibility for checking the accuracy of the BGL; this is not the case with the VAR. The principal is only released from the obligation to withhold and remit payroll tax and social security contributions if the work and the way in which it is performed, as well as the conditions under which it is performed, correspond completely with the statements in the BGL.
The principal does not have to check matters beyond its control, such as the number of principals for which a contractor works. These are also not stated in the decision. If, on the basis of the aforementioned matters, it is concluded that there is an employment relationship, the principal will not subsequently be liable for payroll tax and social security contributions. Under the new methodology, obtaining legal certainty on the part of the principal retains its importance.
If, in practice, the actual work relationship differs from that stated on the BGL, and if this leads to the work relationship being qualified as an employment relationship, the consequences will be far-reaching. The Dutch tax authorities will argue that a withholding obligation already existed upon commencement of the work relationship. This means that, without proof to the contrary, additional payroll tax and social security contributions assessments covering the entire period of the work relationship will be imposed on the principal.
Transitional rules and effective date
To ensure contractors, principals and the Dutch tax authorities have enough time to prepare for the new methodology, the BGL will not take effect immediately after its publication in the Staatsblad (Bulletin of Acts and Decrees). Transitional rules will also apply. It will be possible to already issue a BGL after the Act has been published in the Staatsblad, but before the Act has taken effect. The VAR's validity in 2014 will be extended until the date the Act takes effect.