Friday, February 10, 2017

Netherlands - Independent Contractor Status

By Dennis G. Veldhuizen, CLINT Lawyers & Mediators, Amsterdam, the Netherlands


On 1 May 2016 the Act on Deregulation Assessment Labour Relationships (in Dutch the ‘Wet deregulering beoordeling arbeidsrelaties’, the ´DBA Act´) came into force. This also meant the end of the good-old VAR declaration. The VAR-declaration (which was issued by the Dutch Tax Authorities) indemnified companies that hired self employed freelancers from any potential claims by the Dutch Tax Authorities for wages and social security premiums, should it (later) appear the relationship factually qualified as employment agreement. Before 1 May 2016, if a VAR-declaration had been issued and the relationship nonetheless qualified as employment agreement, no additional tax assessment would be imposed on the company in relation to that freelancer.

Independent contractor?

Whether or not the relationship between the company and the freelancer qualifies as employment agreement depends mainly on whether the following three factors are present: (i) labour, (ii) wages and (iii) authority:

• An employee should personally perform activities and substitution is only possible with the permission of the employer, whereas the freelancer does not have to personally perform labour;
• Employees receives wages for the activities performed, whereas the freelancer receives a (management) fee;
• The contact with a freelancer is aimed at bringing about a result and the contractor bears the responsibility in this respect;
• A relationship of authority exists between the employee and employer, whereas a client has a limited right to give instructions to the freelancer. In fact only to the extent it regards the execution of the freelancer’s assignment.

DBA Act in practice

The purpose of the DBA Act is to minimize the chances of ‘pseudo’ independent contractorship and as such to provide better protection to the self-employed. The DBA Act would also increase legal security, as the differences between employees and independent contractors are now much more defined.

Clients and freelancers have to make use of three types of so-called ‘model contracts’ prior to engagement. These have been drawn up and issued by the Dutch Tax Authorities:

• A general model contract: this model contract covers most business relationship where employment is not involved;
• A sector or profession specific model contract: meant for everyone working according to certain sectoral or professional standards or conditions;
• An individual model contract: a specific model contract that can be used by everyone working in the same sector or profession for which that model contract was drawn up specifically.

Once the model contract is approved by the Dutch Tax Authorities, both parties are assured that there is no requirement to withhold taxes by the client. However, if the Dutch Tax Authorities judge at a later stage that the relation is one of employment rather than independent contracting, both client and contractor will be held liable to withhold payroll taxes and social security contributions with retroactive effect.

The Dutch senate introduced a transitional period of one year, until 1 May 2017. During the transitional period, the Dutch Tax Authorities will not actively enforce the DBA Act, but will mainly focus on providing information.


Already before its entry date, the DBA Act led to uncertainty for both self employed contractors and their clients. Many self-employed became reluctant to take on new engagements and some of them are even considering ceasing their activities because of the uncertainty the DBA Act has caused. The same applies to clients: they are also reluctant to hire a self-employed contractor because of the risk of corrective tax assessments.

The view on the manner in which the tax authorities are handling this is not so positive either: according to the media there is substantial delay in the procedure to approve the model contracts: it takes the tax authorities eleven weeks instead of the promised six weeks to assess whether a model contract meets the fiscal requirements. In addition, it seems that the tax authorities are fairly critical in their judgments: by 1 August 2016 about 370 model contracts had been approved and over 1,000 model contracts had been declined. Self-employed contractors and clients do not know on which grounds the tax authorities have declined the model contracts, since it often lacks clear justification.

Last summer, the giant Dutch temp agency Randstad performed in-depth research on the topic and concluded that under the DBA Act a labour relationship is more often qualified as an employment relationship than it did under the VAR. One of the main reasons for this is the fact that in the model contract a detailed description of the work activities is required: this was not the case under the VAR and as such leads to a more strict qualification. Additionally, the contracts of self-employed contractors with one primary client will in most cases be qualified as having an employment relationship.

On 19 September 2016, the Dutch State Secretary of Finance, Mr. Wiebes, confirmed that the ‘obvious’ independent contractor should not worry. The abolition of the VAR-declaration should not have any consequences for this group. Mr. Wiebes confirmed that it is not the intention of the Dutch Tax Authorities to punish well meaning entrepreneurs who just fall outside the scope of law. However, entrepreneurs who are considered to abuse the system would become subject to tax assessments and risk high penalties.

Will the DBA Act survive?

The mass criticism of the DBA Act did not stop. On the recommendation of a special committee (the Boot Committee), which performed a study of the consequences of the act, the die was finally cast on 18 November 2016: Mr Wiebes decided to postpone the implementation of the DBA Act until 1 January 2018.

This means that in principle, the Dutch Tax Authorities will not enforce the DBA Act during the extended implementation period, provided that the client or its contractor in question is deemed to be ‘well-intentioned’. A party is deemed to be well-intentioned if it is familiar with the DBA Act and in any event attempts to operate in accordance with the model contracts issued by the Dutch Tax Authorities. After January 2018 the Dutch Tax Authorities will furthermore issue warnings before imposing additional tax assessments and fines for breach of the act.

The situation is different for ‘ill-intentioned parties’. As from 1 May 2017, the original end date of the implementation period of the DBA Act, the Dutch Tax Authorities will indeed take enforcement measures against such parties. It may furthermore do so retroactively to 1 May 2016. A client or contractor is ill intentioned if he intentionally creates sham arrangements and benefits or intends to benefit financially from such arrangements.

One thing is clear: it is important to be classified as ‘well-intentioned’ by the Dutch Tax Authorities. State Secretary Wiebes confirmed on 24 November 2016 that all the ill-intentioned parties are ‘old known friends’ of the Dutch Tax Authorities. Mr. Wiebes also stated that a very small number is involved, of definitely no more than ten. Those ill-intentioned parties primarily operate at the lower end of the market. That significantly reduces the risk for other parties of being classified as ill-intentioned, even though a wait-and-see approach is ill-advised.

Next few months

The Dutch government itself obviously still has a great deal of work to do in the coming period. On the recommendation of the Boot Committee, the terms ’employer-employee relationship’ and ‘substitution allowed’ will be modernised. State Secretary Wiebes has furthermore clarified that the implementation period will not end until those terms have been redefined, even if that takes longer than January 2018. The system of model contracts will furthermore be clarified or may even be cancelled.


So while the pressure is off the self-employment sector to some extent, it remains unclear how the DBA Act will ultimately be applied as of 2018. For principals, it is important to continue to use (approved) model contracts in practice. A wait-and-see approach is definitely not an option. The VAR has been abolished and will not be reintroduced.