False self-employment in international business
Carijn van Helvoirt-Franssen
by Carijn van Helvoirt-Franssen
In September 2024 the Dutch government brought the so-called “false self-employment” issue back in the spotlight. The government announced that, after many years, it would start to enforce the rules regarding this issue from 01 January 2025. The announcement led to chaos in the labour market as businesses didn’t want to contract freelancers anymore as that could lead to vast tax liabilities.
Independent contractors or employees
In the Netherlands many freelancers work as independent contractors, while their contract conditions may qualify them as employees (false self-employment). The difference in tax treatment between freelancers and employees is significant.
To determine the taxable status of a contracted individual, the legal qualification is leading. Dutch labour law considers three cumulative conditions for employment:
Personal labour by the employee;
Under instructions of an employer;
For remuneration.
If one of these conditions is not met, there is no employment contract but one of the fulfilment of contract work, i.e. a true “freelancer”.
False self-employment arises when a freelancer works under circumstances (substance over form) that make them, in effect, employees. This has been recently demonstrated in case law in which the Dutch Supreme Court ruled against major companies (Deliveroo and Uber) in labour law cases[1].
False self-employment – what’s next?
As mentioned above, as of 01 January 2025, the Dutch tax authorities (DTA) can enforce Dutch tax law regarding false self-employment. This gives the DTA the power to requalify a freelancer as an employee. Consequently, the taxable status of the individual would change, and wage tax and social security premiums would be imposed on the employer. This can take place retrospectively – the claw back is in principle five years, but is capped at 01 January 2025 (meaning there is currently a few months’ retrospective effect).
International context – additional challenges
In the international context, the requalification of freelancers to employees could have more consequences. Think of the categorisation of income under tax treaties: the allocation of taxable income between countries might be totally different in cases of a mismatch.
Another issue may arise when freelancers are hired to avoid a permanent establishment, and they are requalified as employees. This could trigger a permanent establishment for the company and therefore tax liability in the Netherlands, transfer pricing issues, etc.
From a value-added tax (VAT) perspective, further corrections could be triggered as the individual formerly considered a freelancer may no longer be liable to register for VAT purposes and shouldn’t have been in the first place, which in cross-border situations can lead to complex issues to resolve.
These are just a few examples of potential issues which could arise with this recent change, and there is a retrospective effect of 5 years.
Conclusion
Taking all the above into consideration, please be aware that, prior to hiring an independent contractor in the Netherlands, it is essential to consult a Dutch tax specialist to limit the risks of unpleasant tax surprises.
[1] Employees are protected by Dutch law, contractors aren’t.
EJP Financial Astronauts are auditors, advisers, and challengers. Their team of 55 consists of auditors, accountants and international tax lawyers that have a wide range of expertise. Their main fields of expertise are Dutch corporate and personal income tax, international taxation, Dutch royalty, interest and dividend withholding tax, estate planning, and wage tax. They have an AFM licence to perform audits for the larger mid-sized companies.
GGI member firm EJP Financial Astronauts's-Hertogenbosch, The NetherlandsT: +31 73 850 72 80
Auditing & Accounting, Corporate Finance, Tax
Carijn van Helvoirt–Franssen completed her tax master’s degree in 2014 and has worked in the (international) tax advisory practice for over 10 years. In 2020, she joined EJP and in daily practice, she focuses on (international) tax advice, M&A for larger SME companies in the Netherlands and abroad. Contact Carijn.
