Chain Liability

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Companies who hire subcontractors or temporary workers can be confronted with a liability for Dutch wage tax and social security contributions. This liability occurs when the subcontractor or the employment agency cannot pay its tax and social security debts, often as result of bankruptcy.

Basically, the Dutch tax office then has the right to collect the related tax and social security contributions from the party who actually hired the services. As it is hard to oversee the consequences, measures can and should be taken to limit this chain liability risk.

Risk groups and sectors

The liability risk arises when hiring subcontractors or (temporary) workers, which is common in certain sectors such as building, shipbuilding, construction, ICT and metal and engineering. More specifically it concerns the following categories of service providers:

Contractors and subcontractors
Employment agencies and outsourcing companies
Self-employed workers and freelancers.

Foreign employees

Special attention is required for foreign companies and companies who work with foreign employees. Some important issues are:

Problems with the Labour Inspection (Arbeidsinspectie) concerning illegal employment of non-EU employees, work permits and residence permits
Withholding tax obligations, 183-days rule, permanent establishment (p.e.) and increased risk of the application of the penalty tax rate (anoniementarief)
Notification at UWV Employment Office (formerly CWI) with a notification form or A1 statement (or E101).

Chain liability: also a director's liability

In principle, chain liability is a company’s liability. However, in some cases the directors of the company may be held accountable. This is covered through the director’s liability (bestuurdersaansprakelijkheid), which means that directors of companies can be held personally liable for tax debts in case of mismanagement (onbehoorlijk bestuur).

Limiting liability and preventive measures

It’s better to be safe than sorry. Before hiring subcontractors or temporary workers you can take measures to limit your liability. Information and administration play an important role, as well does the relationship with your service provider. Some key notes:

Identification of employees
Setting up an accurate payroll administration (shadow payroll for foreign employees)
Indemnifying payments into a G-account or directly to the Dutch tax authorities.

Are you being held liable by the Dutch tax authorities? Then it is important to immediately investigate your position. In almost all cases there are opportunities to reduce the tax amount due.

We help you to limit the risks by offering advice on preventative measures. If the absence of a solid chain liability policy in the past has led to liabilities, we can assist you with our expertise by taking compliancy measures in order to reduce the liability risk to a minimum.

More information

For more information about this topic, please contact our people of Employment Tax Services

Mazars organizes in house and external seminars on a regular basis to address the liability risks. For large companies with several offices an in company workshop can be interesting. Ideal for the exchange of ideas, knowledge and increasing the standardization of procedures and guidelines within your organization.