The Assessment of Employment Relationships Deregulation Act (Wet deregulering beoordeling arbeidsrelatie; “DBA Act”), which was adopted by the Upper House on February 2, 2016, will replace the current Declaration of Independent Contractor Status (Verklaring arbeidsrelatie; “VAR”). Under the DBA Act, the withholding of payroll tax and social security contributions by principals on the remuneration paid to their contracted parties will be waived. The waiver only applies if the agreement with the contracted party has been presented to the Dutch tax authorities for review, or if one of the model contracts on the website of the Dutch tax authorities has been used. By using the model contracts, the principal and the contracted party are assured that there is no withholding obligation for payroll tax and social security contributions purposes. The waiver will only apply as long the activities are also actually performed in accordance with the approved (model) contract. The DBA Act limits itself solely to assessing whether a withholding obligation for payroll tax and social security contributions is embedded in the labor relationship.
Deemed employment relationship for supervisory board members
The introduction of the DBA Act also has implications for supervisory board members who currently perform their duties on the basis of a VAR. Pursuant to the law, supervisory board members are in deemed employment at the entity under their supervision. This deemed employment is put aside if the supervisory board member has a valid VAR. In that case, no payroll tax and social security contributions have to be withheld on the remuneration of the supervisory board member and no employer contributions under the Healthcare Insurance Act are payable. The deemed employment of supervisory board members does not apply to employee insurance contributions.
The cancellation of the VAR means that as of May 1, 2016 – the envisioned date on which the DBA Act will take effect – payroll tax and social security contributions must always be withheld on the remuneration paid to supervisory board members. During the parliamentary debate on the bill on the DBA Act, which was held in the Upper House on January 26, 2016, the Deputy Minister of Finance did, however, give an undertaking to rescind deemed employment in respect of supervisory board members – initially via a policy statement and later by amending the law – whereby supervisory board members will no longer fall under the Payroll Tax Act and no payroll tax and social security contributions or employer contributions under the Healthcare Act will be payable. The VAT obligation in respect of the remuneration of supervisory board members is not affected by the rescinding of deemed employment.
Supervisory board members and the 30% ruling
The rescinding of deemed employment can have implications for supervisory board members who make use of the 30% ruling. For the purposes of the 30% ruling, there must be an employment relationship or deemed employment relationship. If deemed employment is rescinded for supervisory board members, then the 30% ruling can no longer be applied. One possible solution is to opt for employment and thereby voluntarily fall under the Payroll Tax Act. One thus uses the legal possibility to nevertheless regard an employment relationship that does not qualify as ‘real’ or ‘deemed’ employment as employment (also referred to as ‘opting-in’). The advantage of opting-in is that the taxpayer is regarded as an employee and therefore, in principle, all the provisions of the Payroll Tax Act, including the 30% ruling, will apply to the employee. Electing to opt-in is not possible if the income of the supervisory board member qualifies as taxable profit for personal income tax purposes.
Depending on the way in which deemed employment is rescinded, there may be more implications for supervisory board members who do not reside in the Netherlands. However, for the moment we will have to await the announced policy statement on the rescinding of deemed employment for supervisory board members before we can provide more clarity on this.