The provisions of the Chain Liability are contained in Articles 35 and 35a of the Collection of State Taxes Act 1990, and in the Implementation Arrangement Hirers-, Chain- and Client liability of 2004. 

The Chain Liability regulation is a measure against possible abuse by contractors and/or subcontractors regarding the payment of payroll taxes. The essence of the Chain Liability Regime is to hold each link in the chain of subcontracting responsible for all subsequent links. 

If the contractor fully or partially outsources the execution of the work to a third party (that is not employed by him), that other party is a subcontractor. Whether someone is the contractor or subcontractor under the regulation depends on the nature of the contract that they have agreed upon. 

When is the Chain Lability Regime applicable? 

The Chain Liability rules are applicable when a contractor executes work of a material nature for a client at a predetermined price. The contractor is thereby not employed by the client. 

Sometimes it is difficult to determine whether a specific work is of a 'material nature.' Usually the execution of such work will produce a tangible product. Work of a material nature is, for example, construction, road construction, land cultivation, repairs and manufacturing of clothing. However, other activities may also fall under this definition, such as the packaging of goods and cleaning.  

Excluded from the Chain Liability Regime are in any case personal services, for instance in the field of science or arts, such as authors, designers and musicians. Transport agreements are also explicitly excluded.  

Supply Chain liability applies to both agreements for which a project price will be paid and to agreements where the contracted work is remunerated based on the hours worked and the processed materials.  

Which taxes and premiums are covered by the Chain Liability? 

 Each contractor who outsources work of a material nature to a subcontractor is liable for the following taxes and levies which have become due in relation to the work done by the subcontractor(s) but, that have not been paid by the subcontractor: 

In order to determine the payroll tax amount that must be paid in relation to work performed to which the Chain Liability applies, the taxable salary of the employees concerned must be known, as well as the applicable rates and special applied tax facilities, such as the 30% ruling, or an exemption from social insurances, etc.  

The Tax Office may hold the contractor liable for interest on unpaid/overdue taxes and costs for the payroll tax assessment(s) if they are due by the contractor himself, for example, when he paid too late. 

The Tax Office may also charge interest on unpaid/overdue taxes and collection costs if the contractor pays his Chain Liability debt too late. 

Who is liable to whom? 

When outsourcing work, the contractor is jointly and severally liable for the payroll taxes that his subcontractor must pay in relation to the salaries paid to the employees that performed the work.  

The subcontractor may, in turn, have outsourced the work (partially) to another subcontractor, which may have outsourced it to other sub-contractor(s), etc. The contractor is, together with the principal subcontractor(s), jointly and severally liable for the payroll taxes of the other subcontractor(s) and of eventual subsequent subcontractors in the chain. 

Each subcontractor is also jointly and severally liable for the payroll taxes of the subcontractors to whom he has outsourced work and of eventual subsequent subcontractors. A chain of liable contractors arises that are involved in a particular work. If one of the subcontractors in the chain does not pay the payroll taxes for this work, then the Tax Office can hold all contractors/ subcontractors who are above him in the chain liable. There can therefore be several contractors/ subcontractors liable simultaneously for the same unpaid payroll tax.  

The Chain Liability always ends at the first contractor in the chain, the so-called main contractor.  

The client of the contractor is not liable under the Chain Liability rules, with the exception of so-called ‘self-builders’, sellers of future materials, and certain categories of clients in the clothing/textile industry.

Order of liability 

The Tax Office maintains a certain order when it comes to the liability in the chain. Usually the first contractor who signed the contract with the subcontractor is held liable, but they can also hold all the contractors/subcontractors in the chain simultaneously liable. Otherwise the debt would remain unpaid. 

When is the contractor not held liable? 

In case no one is to blame for the payroll taxes not being paid, the Chain Liability does not apply. For example, in case of a sudden decline in the economy. The facts and circumstances of the case will determine whether this situation is applicable. 

Once a subcontractor in the chain owes payroll taxes in relation to assigning personnel to subcontracting, the Tax Office can hold each contractor liable who is above him in the chain.  

Objection 

When the owed payroll taxes, in relation to sub-contracting are not paid, the Tax Office will send an injunction to the contractor on which the Tax Office will hold the contractor liable for the unpaid payroll taxes by the subcontractor.  

The contractor can lodge an objection by sending a letter within six weeks from the date of the injunction. The objection must specify the grounds for the appeal, which can relate to the liability itself or the amount for which the contractor is held liable. The contractor may in any case request more information about the assessment for which the contractor is held liable from the Tax Collector who sent the injunction. 

When the objection is rejected, the contractor can still appeal against this decision before the competent tax court, and finally to the Court of Appeal (at least as long as it concerns an appeal on legal grounds, and not on factual grounds). 

If you are interested in our services, please feel free to contact us at our office, via e-mail or by telephone at + (31) 20 570 94 40 (Amsterdam) or + (31) 10 20 10 466 (Rotterdam).