Uber and Deliveroo Issues

It seems like a never-ending fiscal debate: when does employment exist, and when does entrepreneurship occur? The stakes are high. In addition to fiscal interests, labor law is crucial. For an entrepreneur, this doesn't play a role, but it's essential for an employee.

The fiscal interests of the distinction lie with both the contractor and the client. Firstly, for the contractor, who in the case of entrepreneurship can often apply various fiscal facilities that an employee does not have, and can deduct all revenues related to the activities. Additionally, there are other matters to consider, such as pensions and disability insurance, for which they are not necessarily insured. Furthermore, there is the tax liability for turnover tax: VAT in the Netherlands and turnover tax in Curaçao. Employees generally have limited cost deductions—in the Netherlands, none—and are compulsorily insured against, for example, disability, and are practically insured for pensions in most cases.

Secondly, significant interests lie with the client: the main point undoubtedly concerns whether or not to withhold wage tax and social security contributions, and in many cases, also pension premiums. Especially when the client believes that there is no employment, and thus does not apply deductions to the fees, the potential damage is significant if it later turns out to be incorrect. Corrections in the form of additional assessments of wage tax and social security contributions then fall to him. If the employment relationship has lasted a long time, the financial damage can be substantial, as an additional assessment can also concern previous years. Furthermore, a penalty may be imposed, and interest may be due. However, the damage may be somewhat lessened because, insofar as it concerns employee burdens, these can—in principle, should—be recovered from the employee. After all, the employee is the taxpayer and partly the premium payer. Experience shows that recovery from the employee is practically very challenging. The employee might no longer be employed, but if he is still employed, he will typically resist recovery actions from the employer. Often, in such situations, the employer takes the levies into account himself. With all the consequences: this is an advantage for the employee, which is considered a wage and must be taxed.

The differences mentioned above also lead to hiring an entrepreneur being cheaper for a client than attracting an employee. Moreover, flexibility is much greater because the employee, as mentioned, has various protective rules derived from labor law. It is therefore not surprising that entrepreneurship is popular, both with clients and contractors. In countries like the Netherlands, this has led to a sharp increase in Self-Employed Without Personnel (in Dutch: ‘Zelfstandigen Zonder Personeel’ or ‘ZZP'ers’), in recent years. The problem is becoming increasingly visible that it is very questionable whether these ZZP'ers are truly entrepreneurs or whether there is disguised employment or false self-employment. That is obviously not the intention. Besides undermining various schemes, it also disrupts economic solidarity between workers.

The aforementioned increase in ZZP'ers has received an extra boost from companies like Uber and Deliveroo, which make extensive use of flexible workers who are keen to present themselves as entrepreneurs, which these companies also prefer for earlier mentioned reasons.

The tax authorities in the Netherlands have started to combat these issues, and the Supreme Court has ruled on whether the ZZP'ers working for the aforementioned businesses are entrepreneurs or employees. This jurisprudence is in principle also relevant for the situation in Curaçao, as there a similar approach applies as in the Netherlands.

Problem: the Supreme Court also struggles to provide a clear answer on the status of an individual. It depends on the circumstances. This is practically inconvenient, but not surprising. Entrepreneurship and employment are, in principle, so-called open standards that are not easily defined precisely. Nonetheless, it is helpful that the Supreme Court, in the Deliveroo ruling, has given criteria that play an important role in the assessment. These are the following nine criteria:

1. The nature and duration of the work;
2. The manner in which the work and working hours are determined;
3. The embedding of the work and the person performing the work in the organization and business operations of the person for whom the work is being performed;
4. The existence or non-existence of an obligation to perform the work personally;
5. The manner in which the contractual arrangement of the parties' relationship has been established;
6. The manner in which the remuneration is determined and paid;
7. The level of these remunerations;
8. The question of whether the person performing the work bears commercial risk;
9. The question of whether the person performing the work behaves or can behave as an entrepreneur in economic traffic, for example in acquiring a reputation, in acquisition, regarding fiscal treatment, and considering the number of clients for whom he works or has worked and the duration for which he typically commits to a specific client.

These criteria are repeated in the Uber ruling. In that ruling, an important addition was made, namely that the same work can lead to employment in one case and entrepreneurship in another. That depends on the circumstances. It is helpful that the Supreme Court has provided more clarification, but in concrete cases, it remains a challenging assessment.

Incidentally, I believe that the route taken by the Supreme Court is not fundamentally correct: in the systematics of the law, entrepreneurship comes first, followed by employment. Therefore, in my opinion, it should first be tested accordingly. The Supreme Court does not do this correctly in my view.

Peter Kavelaars is a professor of Fiscal Economics at Erasmus University Rotterdam and Of Counsel at Deloitte Dutch Caribbean.