Tax Authorities approve 21% of model agreements

Commissioning parties who make use of the services of Independent contractors need to have clarity in advance as to whether a fictitious employment relationship will be involved. Before the Deregulation of Assessment of Independent Contractor Status Act (Dutch: Wet DBA or DBA Act) came into force on 1 May 2016, commissioning parties could obtain certainty by means of a declaration-of-independent-contractor-status (or VAR): if an Independent contractor was able to hand over one, the commissioning party was indemnified from both withholding tax and employee- insurance contributions.

Assessment of model agreements

Since the disappearance of the VAR on 1 May 2016, there has been a lack of clarity concerning the status of the relationships between commissioning parties and Independent contractors. The Tax Authorities have made model agreements available. Where the relationship between the commissioning and contracting party is based on such an agreement, there is, in principle, no question of an employment relationship.

To obtain greater certainty, the parties to a model agreement can also have their model agreement assessed by the Tax Authorities. This certainty is however a superficial one: should it appear in practice that the provision of services is not in accordance with the model agreement, the Tax Authorities can still determine that an employment relationship is involved, in which case the commissioning party is as yet obliged to pay withholding tax and employee-insurance contributions.

This insecurity hangs as a Sword of Damocles above the head of commissioning parties and has a destabilising effect on the market, as well: due to the risk of additional assessments, many choose certainty over uncertainty and call in temporary-agency workers instead of Independent contractors, or (temporarily) hire personnel on the basis of an employment agreement. Commissioning parties and independent contractors are desperate for clarity. As mentioned in a recent blog, such clarity has yet to arrive.

The facts at a glance

A letter from the Tax Authorities of 9 June 2017 in response to a request based on the Public Access to Government Information Act (WOB), contains a number of interesting facts concerning how the Tax Authorities assess model agreements in practice.

Up to 17 April 2017, 7,443 model agreements were submitted for assessment. Twenty-one per cent of these were approved, thirty-five per cent were rejected and eleven per cent are still being processed. Processing of the remaining thirty-three per cent was stopped, and no decision on them will be issued. The reason for this is either that the submitting party (1) no longer requires a decision, (2) has itself concluded that an employment relationship is involved or (3) has decided to use a published model, or (4) an agreement for services is clearly involved and the submitting party does not consider a model agreement necessary.

The average processing time for an assessment is fourteen (14) weeks (something confirmed by our own experience with submitting clients’ model agreements to the Tax Authorities) – this whilst the Tax Authorities themselves state on their website that they try to assess model agreements submitted within a period of six (6) weeks. For commissioning parties and Independent contractors – especially those anxious to get to work and have certainty on their relationship, the long processing period forms a substantial problem.

According to the Tax Authorities, the longer processing time is due to the “coaching role” they fulfil. Model agreements that are in some way deficient are not immediately rejected, and an attempt is made together with the submitting party to see if the problem cannot be corrected. Model agreements whose initial version was rejected typically hold up to assessment the second time around.

Enforcement postponed

In their letter, the Tax Authorities also indicate that, in any case, enforcement has been put off until 1 January 2018, a date which is already out-of-date. Enforcement of the DBA Act has in the meantime been further postponed until 1 July 2018 at the earliest.

You can find a full copy of the letter from the Tax Authorities of 9 June 2017 here.

Eric van Dam (evd@clintlegal.com / +31 20 820 0330)