An entrepreneur may be held liable in various ways for taxes and social security contributions that have not been paid by others. They may, for example, be held liable in their capacity as a hirer, contractor or director.
A familiar situation
The case discussed at the Zeeland-West Brabant District Court This is a very familiar situation. A construction company hires workers from a labour hire agency. The agency fails to pay (or does not fully pay) the payroll tax and social security contributions. The Tax and Customs Administration carries out an audit of the agency’s accounts, but the records are either missing or are not (sufficiently) transparent. The investigation is then continued as a third-party investigation at the construction firm hiring the workers. On the basis of information derived from the hiring firm’s records, additional tax assessments are imposed on the labour supplier. However, in most cases, the supplier is unable to pay these assessments – which are often very substantial due to grossing-up, interest and penalties. This was also the case here. The tax collector therefore holds the hiring construction company liable (hiring party liability).
No right-of-way rules
Naturally, the construction company contested this liability as the hirer. It did so on the grounds that the tax authorities should first have held the directors of the lending company liable. Only after it had become apparent that the tax debts could not be recovered from those directors should the construction company, as the hirer, have been held liable.
However, the Court rules that in this case, in the Debt Recovery Act no rules of priority have been laid down. The recipient is therefore free to choose which party is held liable. The Recovery guide does not contain these rules. The Court therefore considers that the choice of recipient does not contravene the principles of good governance. Nor was there any arbitrariness.
A hesitant response
The construction company also argued that the Tax and Customs Administration had known for a long time that the lender(s) had not been paying tax and social security contributions, but had not taken any action against this. The Court is of the opinion that the Tax and Customs Administration is under no active duty to provide information to the clients of business owners against whom it is conducting an investigation.
The Tax and Customs Administration states that, in the present case, the investigation was launched in 2009 on the basis of a suspicion of VAT fraud. The Court does not consider it plausible that this investigation related to the secondment of employees, given that a reverse charge mechanism applies to this under VAT legislation.
It was not until 2013/2014 that an investigation was launched into the payment of payroll tax and social security contributions. Following that, additional tax assessments were issued without delay. The Court sees no reason to doubt this explanation provided by the Tax and Customs Administration.
Prevention is better than cure
Following the abolition of the VAR, many business owners have once again opted for the safe haven of hiring staff on a temporary basis. However, it is important to safeguard that haven as effectively as possible. The advisers to VWGNijhof can help you with that.