In 2015 clients and independent contractors will become jointly liable for the assessment if their working relationship should result in the withholding of payroll taxes and payment of social premiums by the client. This is stipulated in the legislative proposal for the Exemption from Payroll Tax Withholding Act. Under this new Act the Exemption from Payroll Tax Withholding (BGL) replaces the Declaration of independent contractor status, known as VAR.
BGL replaces VAR
In the event of a VAR the independent contractor requests a ruling of the Tax Administration whether or not his income qualifies as wage. The client isn’t involved in the VAR process. If the independent contractor holds a VAR ‘profits from business activities’ or VAR ‘income from activities at the company's risk and expense’, the client may fully trust that he’s doing business with a true independent contractor. Should the Tax Administration in hindsight decide that the contractor wasn’t an independent contractor at all, then the financial consequences will be for the sole account of the contractor only.
The introduction of the BGL changes this. The BGL makes both the client and the independent contractor liable for the proper assessment of their working relationship.
In the BGL the Tax Administration confirms that no payroll tax withholdings are required. Receipt of the BGL also means that no national insurance premiums need to be withheld or premiums employed persons need to be paid. The same applies to the mandatory income-related contribution towards the health insurance.
The independent contractor requests the BGL through a web module. He answers questions with regard to the nature and the contents of the assignment. Once the BGL is granted it includes the conditions under which the assignment can be performed.
The client needs to check the BGL prior to giving the assignment. The legislator assumes active involvement of the client in verifying that the BGL is correct. If the actual situation matches the conditions of the BGL, the client may unrestrictedly derive rights from the BGL: withholding payroll taxes isn’t required and no social premiums need to be paid. If the actual situation however differs from the conditions of the BGL and no payroll tax has been withheld or social premiums have been paid, the Tax Administration may hold both the client and the independent contractor liable for this. In this manner the BGL creates a joint liability for the client and the independent contractor to make a true and honest assessment of their working relationship.
The anticipated introduction of the BGL makes it even more important for assignment contracts to be up to date.
As the BGL comes in effect at a later date in 2015, both the VAR and the BGL can be valid during a part of the year.