One client business
Still an undertaking despite working for only one client
At our tax consultancy firm I Amsterdam we are regularly asked by clients if an person with only one or a limited number of clients can still be considered to be a business undertaking. It seems that new businesses and the self-employed especially find it difficult to get a handle on the tax criteria concerning entrepreneurship. As an entrepreneur you would always start with one client to see how the enterprise will go. If there remains only one client for a lengthy period of time then it might not be considered a business undertaking. Considering whether or not there is an undertaking with only one client depends on all the facts and circumstances. All relevant factors must be taken into account before the conclusion is made. For the tax authorities the conclusion will not always be shared and often a lengthy discussion ensues regarding this matter.
If your discussion with the tax authorities does not go anywhere then this could result in legal proceedings. A recent Breda Court case illustrated a good example. In the ruling the Breda Court touches on the relevant criteria surrounding the concept of entrepreneurship.
To give you a good idea here is a short summary of the case and the main points covered by the ruling:
X worked until August 10, 2007 for Woningbouw. In July 2007 he registered at the Chamber of Commerce and registered himself as an entrepreneur with the tax office. The activities of his business consist of installing floors and making walls etc. (concrete masonry). Until February 1, 2008 X had worked on an assignment for Woningbouw and after February 1, 2008 he had – until 2009 – worked for A. The tax inspector did not consider X to be an entrepreneur for 2008. However the Breda Court ruled that X is indeed an entrepreneur. The court considered it pertinent that X has outwardly presented himself as self-employed.
More elements for consideration
According to the court there is an organization of labour and capital with the aim of making profit. The court points out that in 2008 and 2009 profit is made. The court found that X also managed to demonstrate that he possessed sufficient independence from the client. Furthermore, the court found it likely that X had run a risk in operating his business. The fact that X mainly worked for one client in 2008 – given that the nature of the work entails that there are often long term assignments – is of no relevance according to the court. The court further pointed out that in 2008 X tried to acquire new clients, which – seen by the revenue growth in 2009 – was successful. The inspector had then wrongly classified X by not classing him as an entrepreneur.