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Goodbye to the VAR: Those were 14 good years

February 15, 2016
Martyn Top, employment law specialist, Höcker Advocaten, Netherlands

Hocker-logoThe Declaration of Independent Contractor Status (Verklaring Arbeidsrelatie, ‘VAR’) was introduced on 1 January 2002. The VAR has been in its current form since 1 January 2005. If the contractor submitted a ‘VAR WUO’ (VAR with respect to profits from business activities) or ‘VAR DGA’ (VAR with respect to income from activities at the company’s risk and expense), the commissioning party could trust that it would not have to pay payroll taxes or social security contributions. In the legal jargon, the VAR had an ‘indemnifying effect’. The Dutch Tax and Customs Administration issued the VAR WUO and VAR DGA without much fuss, and it hardly monitored the situation at all. Having obtained the status of independent contractor, small businesses (self-employed workers without employees) were able to take advantage of numerous tax facilities.

Bogus self-employment and the Assessment of Employment Relationships (Deregulation) Act
In the Tax and Customs Administration’s and government’s view, the VAR came to be misused over time. People who were not really self-employed were said to be wrongly taking advantage of the VAR WUO and VAR DGA. This was but an impression, by the way, as there are no figures on the nature and scope of this ‘bogus self-employment’. All the same, this caused the government to reform the system and to introduce the draft bill on Assessment of Employment Relationships (Deregulation) (Deregulering Beoordeling Arbeidsrelaties, ‘DBA’).

Model agreements
The bill was passed by the Upper House of Parliament on 2 February 2016 and will take effect on 1 May 2016. The DBA eliminated the VAR. Instead, parties will now to have to work with ‘model agreements’. By using one of the model agreements approved by the Tax and Customs Administration, the commissioning party will be assured of not having to pay payroll taxes or social security contributions on the payments made to the contractor.

If an approved agreement is not used, the financial consequences may be considerable. The most important consequence is that the tax authorities can retroactively characterise a work relationship as employment. The commissioning party will then be faced with an additional tax assessment (which cannot be recovered from the contractor!) in the form of a final levy.

Submission of agreements
The risk of additional assessments will probably spur most commissioning parties to (1) use a model agreement published by the tax authorities or (2) submit to the tax authorities a draft agreement formulated by themselves. Be aware that the tax authorities will earmark the agreements approved. If an agreement which differs from the approved model is used, the commissioning party will not obtain the assurance it seeks. Any changes to an agreement, however limited, should therefore be submitted to the Tax and Customs Administration again for approval. The next question is how quickly the tax authorities will handle these requests. To avoid tax-related surprises during the course of a cooperative arrangement, the agreement should be submitted to the tax authorities beforehand. Some commissioning parties will opt to make a list of all forms of cooperation with self-employed individuals within the company, articulate these in individual agreements and then present the entire package to the Tax and Customs Administration as soon as possible. The DBA in any event provides a good reason to examine the use of self-employed individuals within the organisation.

If you’d like to know more about the DBA and its impact on your organisation, please contact one of our employment lawyers.