Ruling on Legal Status
Simplifying the Application Process

Over the last 10 to 15 years there has been a noticeable increase in the number of people opting to operate their own business, sometimes in the form of a franchise. However, the relevant laws and regulations do not clearly define 'independent business operator' or an 'independent agent' making it difficult to determine how a professional should be classified for tax and social benefit purposes. As a result a person may be regarded by the tax authorities as an independent operator yet by the social security agencies as an independent agent. A number of franchise organizations were confronted with this problem in the 1990s, in some cases with significant consequences.

A working party was asked to publish recommendations to put an end to this ambiguity so that a business person, such as a franchisee, would be regarded the same for income tax purposes and for employee and disability insurance.

The working party made a number of recommendations. The two most important of these are its recommendations on legal status and its recommendation for a simplified application procedure.

Ruling on Legal Status

The working party made two important recommendations with respect to franchisees. First, a programme should be created so that franchisees may clarify their legal status for employee insurance payments, disability insurance for the self-employed, and wage and income tax.

A franchisee should qualify as an independent business operator for a period for a period of two years. During this period the franchisee would be unable to apply for benefit payments or other payments pursuant to an employee insurance policy. This would prevent franchisees who wish to position themselves as independent business operators from attempting to rely on employee benefits in the event of illness or disappointing business results.

After two years a fresh application could be submitted to determine whether the franchisee still qualifies as an independent business operator. This application should be processed quickly; the working party suggested a processing time of eight weeks.

The working party believes that a ruling can be made by one of two methods. The first looks at whether the franchisee looks like an employee of the franchisor. The three elements that should be assessed are:

  • if the person is actively involved in work;

  • the receipt of wages; and

  • the relationship with an authority.

The second method looks at the amount of independence the franchisee enjoys. Factors that can play a role in determining this include:

  • any investments;

  • exposure to accounts receivable risk;

  • working for more than one principal;

  • the level of independence from principals; and

  • selling and advertising activities.

Either method is capable of clarifying whether the franchisee is an independent business operator or just an independent agent of the franchisor. However, the working party specified a preference for the first.

The cabinet endorses the working party's preference for the first method.

Simplifying the Application Process

There will have to be a simple and comprehensive application form that should be submitted by potential business operators to the tax authorities or benefits agencies. A choice will also have to be made as to which agency is to process the applications.

The cabinet has adopted this recommendation as well, and will attempt to implement it by January 1 2002.

For further information on this topic please contact Kees Bothof at Anema & Greve by telephone (+31 10 436 2866) or by fax (+31 10 436 6485) or by e-mail ([email protected]).

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