Important ruling on A1 declaration

If a temporary employment agency does not supply temporary employees to local clients in the country of establishment, but only lends manpower to foreign clients, the conditions of the secondment provision cannot be met and therefore no A1/certificate of coverage can be issued.

The case

A temporary employment agency based in Bulgaria makes temporary workers available to German hirers and applies to the Bulgarian social security institution for A1/certificates of coverage attesting that Bulgarian social security legislation continues to apply to the seconded workers temporarily employed in Germany. The Bulgarian body refused to issue the A1/certificates of coverage, claiming that this was not a secondment within the meaning of European Regulation 883/2004.

Secondment

Based on European Regulation 883/2004, the general rule is that an employee must be covered by social insurance in the country where they work. An important exception applies if the conditions in the secondment provision are met. Based on this provision, an employee remains covered by social insurance in the country where the employer is established (i.e. the Member State from which the employee is seconded) if they are temporarily seconded to another country by their employer.

One of the conditions is that the company normally carries out its activities in the country of establishment, in this case Bulgaria. This is known in practice as the “substance requirement”: the company must carry out substantial activities in the territory where it is established, going beyond mere internal management. This must be determined by all the criteria that characterise the employer's activities.

The Bulgarian temporary employment agency did not supply temporary workers to Bulgarian hirers, but only to hirers abroad. The temporary employment agency had argued that the substance requirement was nevertheless met, because substantial work was carried out in Bulgaria on the recruitment and selection of temporary employees.

Clarification on substance requirement for temporary employment agencies

However, the Court ruled that although this recruitment and selection work contributes to the sales of the temporary employment agency, these sales are actually achieved only when it starts to supply temporary workers to hirers. “Substantial work” in the country of establishment can only be said to exist if agency workers are also seconded to a significant extent to hirers in that country.

In other words, if workers are seconded by a Bulgarian temporary employment agency only to hirers in another country (and not also in Bulgaria), the conditions of the secondment provision cannot be met and no A1/certificates of coverage can be obtained. This means that the employees are not insured in the country where the employer is located, but in the country where they work (temporarily). This results in the employer having to pay contributions in the country of employment. In practice, this may lead to double taxation, as the employer may have already paid contributions in the country of establishment - apparently unjustly.

Other conditions secondment provision

In addition to the substance requirement, there are a number of other conditions that must be met in order for the secondment provision to apply. For instance, there must be a 'direct relationship' between the employer and the employee, there may be no hiring in and hiring on manpower and no replacement of an employee, and an employee must be subject to the foreign social security system for at least one month before being seconded.

What is important for you as a hirer?

Dutch companies hiring in workers from foreign temporary employment agencies would be well advised to check whether an A1/certificate of coverage has been issued for these foreign workers. It is important to check the contents of the A1/certificate of coverage, for instance whether it contains the right information and was issued for the correct period. If you have a question about the A1/certificate of coverage or if you would like to be sure that it meets all the requirements, our specialists at Mazars will be happy to help you.

After all, on the basis of the hirer's liability, hirers may be held liable by the Dutch Tax Administration for non-paid wage taxes, including social security contributions. This risk can be prevented by only hiring staff from temporary employment agencies with a NEN 4400-2 certificate, depositing a sufficient amount in the guarantee account (G-rekening) of the foreign hirer and complying with the additional administrative conditions.

In this article, we will not elaborate on another exception to the general rule of compulsory insurance in the country of employment. This exception applies to working in several countries and an A1/certificate of coverage can be obtained for this exception as well. This exception has its own conditions and is also intended for situations other than secondment.