Extraordinary situations in the Chain Lability Regime
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Special rules apply to certain special groups of taxpayers regarding specific situations, which includes the following:
Self-employed persons without employees (ZZP)
The Chain Liability rules do not apply if the sub-contractor is a self-employed person without employees (in Dutch a 'ZZP'). However, when the self-employed person employs staff to do the work for which payroll taxes become due, the Chain Liability rules can become applicable again.
Directors/substantial shareholders (DGA)
A contractor can be held liable for the payroll taxes owed by a sub-contractor on account of the salary paid (or deemed to be paid) to a director who is also a substantial shareholder of the company of the subcontractor. For qualifying Directors/substantial shareholders who work for their own company a minimum salary rule applies.
Foreign contractors
Foreign based contractors who engage Dutch sub-contractors for projects executed abroad, will under normal circumstances not become liable under the Chain Liability rule. However, if and to the extent the work is actually being executed in the Netherlands (on account of which Dutch payroll taxes become due) the Chain Liability rules can apply.
Apart from the foreign contractor that becomes liable on the Chain Liability rules under certain conditions the following persons may be held liable as well:
- the person in charge of the permanent establishment (branch manager) in the Netherlands
- the permanent representative of the foreign contractor who lives or is established in the Netherlands
- the person in charge of the work executed in the Netherlands.
Work mainly performed within one's own company
If a subcontractor conducts the work wholly or mainly in his own company (so not at the building site or the premises of the contractor), then the contractor is not liable under the Chain Liability rules. In this context 'mainly' means: more than 50% of the required number of working hours.
This exception does explicitly not apply to the manufacturing of clothing and any operation related to it, but it does apply to footwear.
Purchase and sale of existing materials
In general, an agreement for the purchase and sale of existing materials (i.e. materials that do not need to be designed and manufactured upon request of the buyer), are not covered by the Chain Liability rules.
When the seller of the materials also executes work in relation to the deliverance or installations of the materials sold, the seller can insofar be considered a subcontractor for application of the Chain Liability rules, unless this work is of a subordinate nature within the total transaction agreed upon.
Debt Settlement Arrangement or bankruptcy
Financial problems of a subcontractor pose a risk to the contractor and may result in an inability for the sub-contractor to pay the payroll taxes which it owes, for example in case the subcontractor goes into a statutory Debt Settlement Arrangement or bankruptcy.
The payment of (part of the) invoice amount to the so-called G- account of the sub-contractor can be effective to avoid this liability in case the aforementioned situations threaten to occur, but the payment to the G-account of the sub-contractor will no longer offer protection against the liability based on the Chain Liability rules as soon as the statutory Debt Settlement Arrangement or bankruptcy actually goes into force.
Frederieke den Hartog
Director/ Senior Consultant - Payroll & Expat Practice
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