Debbie Liem contributed an article to the September issue of Balie Bulletin Oost-Brabant on the topic of false self-employment and the tax authority’s (more specifically: the Receiver's) ability to hold third parties liable for wage tax. Read the English translation of her contribution below.
False Self-Employment and Fiscal Liability
The tax authority has announced its intention to start enforcing rules on false self-employment by 2025. This means that employers working with freelancers, while the tax authority considers it an employment relationship, may be required to pay wage tax.
[This contribution was written in July 2024, taking into account developments up to that point.]
Announcement
The tax authority has announced enforcement from 2025, but a challenge for practice is that the criteria for determining whether there is an employment relationship are not yet very clear. At least for now, cases will be assessed based on the criteria from the Deliveroo judgment (Supreme Court, March 24, 2023, ECLI:NL:HR:2023:443), and these criteria leave room for debate. Although a law is in the works that aims to provide more clarity on this issue (Law on Clarifying Labor Relations and Legal Presumption), this law is expected to be ready by 2026 at the earliest.
Consequences
If it turns out that there is an employment relationship, the worker could claim employee rights, such as overtime and severance pay. Pension funds could also retroactively claim premiums.
Last but not least, there are the tax consequences. The tax authority could retroactively impose wage tax, potentially with (tax) interest. If done retroactively, this can apply from January 1, 2025, at the earliest. In some cases, a penalty may also be imposed.
Wage Tax
The "grossing up" of wage tax could come into play. The amount the worker has invoiced could be treated as a net compensation. This compensation would then be grossed up. In addition, taxation at the high "anonymous rate" could apply. This may occur if not all the necessary information is available in the employer's records, for example, because the employer assumed they were working with a freelancer and did not collect all the required information about the worker. In short, the application of grossing up or the anonymous rate could lead to a significant increase in the amount of wage tax owed.
Fiscal Liabilities
These developments also raise the issue of fiscal liabilities. The tax authority may, in certain cases, not hesitate to hold a third party liable for the wage tax owed due to false self-employment.
Example
An example to illustrate how this could happen: X BV undergoes a tax audit. The auditing officer notices that X BV has worked with Piet. X BV lent Piet to Y BV. X BV believes that Piet is a freelancer. However, the auditing officer considers the relationship between X BV and Piet to be an employment relationship. If X BV cannot cover the wage tax due, the tax authority may choose to hold Y BV, as a third party, liable for the wage tax owed by X BV.
Tax Collection Act
If the tax authority’s Receiver wishes to recover a tax debt from a third party, they can use the options available under civil law. Additionally, the Receiver has access to the 1990 Tax Collection Act (Invorderingswet 1990). This law allows the tax authority to hold a third party liable for a tax debt with relative ease. Under this law, the Receiver can issue an order holding the third party liable. The third party must then object to this order within six weeks; otherwise, the order (and thus the obligation to pay the wage tax) will become legally binding.
Defense
In the example outlined above, third-party or chain liability may apply (Articles 34 and 35 of the 1990 Tax Collection Act). If the third party files an objection and then appeals (to the tax court) against the order, they can contest both the liability and the amount of the tax debt. It is important to note that the third party can request access to all information on which the tax assessment is based. This is an extensive right of access (under Article 49 of the 1990 Tax Collection Act).
Conclusion
In my view, the announced enforcement could have a significant impact. Entrepreneurs can begin to assess their legal positions in preparation for the announced enforcement. After all, it is often better to prevent than to cure.
If you have any questions or if you would like more information on this topic, feel free to contact our attorney-at-law Debbie Liem (debbie.liem@vdb-law.nl).