Many entrepreneurs run their businesses through a private limited company (the operating company). The shares in that BV are owned by the personal holding company of the director and major shareholder (DGA). The DGA carries out his work for the operating company on the basis of a management agreement with the personal holding company. The DGA also enters into an employment contract with the personal holding company.
Insurance obligation
Most directors and major shareholders do not wish to be covered by employees’ social insurance schemes (unemployment benefit and the Work and Income (Disability) Act). After all, they are entrepreneurs who assess for themselves the risks they face, as well as the extent to which and at what cost they wish to insure themselves against those risks.
If the director and major shareholder is not insured, the private limited company will, of course, not pay the premiums for employees’ insurance schemes. A director and major shareholder who becomes unemployed or unable to work cannot claim unemployment benefit or disability benefit.
You cannot choose whether or not to be covered by statutory employee insurance schemes. If you are in employment, you are covered. The only exception is for directors and major shareholders (DGA) who meet the Director-major shareholder designation scheme. Put simply, the director and major shareholder must be a director of the private limited company under the articles of association and must not be able to be dismissed against his will.
See-through approach
In the scenario described, the director and major shareholder is employed by his personal holding company. After all, he has entered into an employment contract with that private limited company. However, the Tax and Customs Administration takes the view that, when assessing the obligation to take out employees’ insurance, one must look beyond the personal holding company.
The question of whether this is justified has been raised before the Courts of Appeal The Hague and Amsterdam. In both cases, these tax courts reject the ‘look-through’ approach. However, they do consider that an assessment must be made as to whether the management contract should be regarded as an employment contract.
In both cases, it was ruled that the Tax and Customs Administration had not provided sufficient grounds for its decision. As the Ministry of Finance did not appeal these decisions to the Court of Cassation, the current status of this legal doctrine remains unclear.
Management contract = employment contract
In a new case The Gelderland District Court has ruled that the management agreement must be regarded as an employment contract. This case concerns a private limited company (BV), whose shareholders are four personal holding companies. Three of these hold a stake in the operating company of 26%. The fourth shareholder owns 22% of the shares. The operating company has entered into a management agreement with the four personal holding companies for the work to be carried out by the directors/major shareholders.
In reaching its decision that the management contracts should be regarded as employment contracts, the Court takes into account various circumstances in their overall context:
- The personal holding company may not, without the prior consent of the operating company, have the work carried out by anyone other than the director and major shareholder;
- A monthly allowance has been agreed on the basis of a 40-hour working week;
- In the event of the director and major shareholder falling ill, the management fee will continue to be paid for 12 months;
- the management agreement shall terminate upon the death of the director and major shareholder, and as soon as the personal holding company ceases to be a shareholder of the operating company;
- a strict non-competition clause;
- the fact that the operating company takes out professional indemnity insurance;
- the provision in the articles of association stipulating that the General Meeting of the operating company must approve many board resolutions in advance by a 70% majority;
- The personal holding company has not demonstrated that it carries out any activities other than management activities.
Appeal
It is likely that an appeal will be lodged against the court’s ruling. As a result, we will have to wait quite some time before we know whether, in view of the circumstances outlined, the management contract will be treated as an employment contract. Should the Court of Appeal rule against the Tax and Customs Administration, this case may well provide grounds for an appeal to the Supreme Court.