Expert Group opinion on the reverse charge mechanism

This Expert Group opinion concerns an employee living in the Netherlands with two employment contracts: one with the Dutch employer responsible for tax withholding based in the Netherlands, employer A, and one with employer B, based in Germany. A and B belong to the same group of companies. The employee has social security cover in the Netherlands. The German employer B has registered with the tax inspector as an employer responsible for tax withholding for this employee, as referred to in section 6(2)(b) of the Wages and Salaries Tax Act 1964 (hereafter: Payroll Tax Act). Upon request, the tax inspector then issues a decision under Section 6(6) of the Payroll Tax Act, shifting the withholding requirement from the German employer B to the Dutch employer A. 

The question was whether the maximum salary subject to employee insurance contributions and the maximum salary subject to employer’s contributions under the Health Insurance Act would apply once or twice when applying the reverse charge mechanism.

The Expert Group responded that the maximum salary subject to employee insurance and healthcare contributions applies only once when the reverse charge mechanism is invoked. The Expert Group argues that this follows from the phrase in Section 6(6) of the Payroll Tax Act which states that the Dutch employer responsible for tax withholding takes over not just the administrative obligations of the foreign group company but acts entirely in the place of that foreign group company. For the purposes of employee insurances, therefore, there is only one employer, i.e. the Dutch employer responsible for tax withholding.  

In a previous Expert Group opinion the Payroll Tax Expert Group had already ruled that only a foreign employer that is also an employer responsible for tax withholding in the meaning of the Payroll Tax Act can make a reverse charge.  Had the foreign group company therefore not been liable for wage tax withholding, it would not have been able to reverse charge the social security contributions only.