Does your organisation hire freelancers? The tax authorities will be checking for pseudo self-employment
If you hire freelancers on a regular basis, you should be aware that the Dutch Tax and Customs Administration will start to enforce the Assessment of Employment Relationships (Deregulation) Act (in Dutch: Wet DBA). This Act centres around the question of whether a freelancer is pseudo self-employed or not. Find out whether you have hired any freelancers who are pseudo self-employed.
Assessment of Employment Relationships (Deregulation) Act: what is it about?
The Assessment of Employment Relationships (Deregulation) Act superseded the Declaration of Independent Contractor Status (Dutch acronym: VAR) in 2016. The new Act puts the responsibility for the tax implications of the employment relationship in the hands of both the freelancer and your organisation.
Together you decide whether you have an employer-employee relationship (paid employment) or not. If there is no such relationship, you need to formalise this in a model agreement.
Monitoring and enforcement
The Dutch Tax and Customs Administration will start monitoring and enforcing the law from 1 January 2020 onwards. Its monitoring activities will take the form of a due diligence review. If the Tax and Customs Administration qualifies your employment relationship with a freelancer as pseudo self-employment, you risk becoming subject to additional tax assessments and possibly a fine. Before the Tax and Customs Administration starts enforcing, they will first issue an instruction. You will be given some time to follow this instruction. The Tax and Customs Administration will, however, enforce the law right away in the event of malicious intent.
You will be considered guilty of malicious intent if you intentionally allow a situation of pseudo self-employment to exist or continue to exist.
The following three situations are deemed to demonstrate malicious intent:
- An employer-employee relationship (fictitious or otherwise)
- Manifest pseudo self-employment
- Intentional pseudo self-employment
Pseudo self-employment despite model agreement?
Even if you use a model agreement to formalise that there is no employer-employee relationship between your organisation and a freelancer, the Tax and Customs Administration may still take the view that the freelancer is pseudo self-employed. For this reason, it is important that you implement the provisions of the model agreement you have signed.
Example: Western Construction Ltd.
Please allow me to illustrate my point with a fictional example. Mark, the Managing Director of Western Construction Ltd., hires Alan, a freelancer. Alan works for Western Construction Ltd. nearly year round. He receives all his work instructions from Mark. Despite the fact that Alan is a freelancer, he is provided with work wear, receives a Christmas hamper and attends work parties.
Mark and Alan have signed a model agreement formalising that they do not have an employer-employee relationship. The Tax and Customs Administration’s due diligence review shows that they do, in fact, have an employer-employee relationship since the way in which Managing Director Mark interacts with freelancer Alan is no different from how he interacts with his actual employees.
When in doubt, contact accon■avm
Does your organisation hire freelancers and are you unsure whether some of them qualify as pseudo self-employed? My colleagues and I would we happy to provide you with the right legal and tax advice. You can contact us by sending an email to firstname.lastname@example.org. We are here to help.Need advice on this subject?
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