International hiring-out of labour (Taxwatch (Tax news in english) ) 

The Danish National Tax Tribunal has ruled in a case of international hiring-out of labour versus contract work.

The distinction between international hiring-out of labour and contract work is a common issue to be decided in tax cases.

This particular case concerned a contract regarding construction of a single-family house between a Danish family, and a Polish business. The Danish National Tax Tribunal ruled in favour of contract work. In its decision, the Danish National Tax Tribunal considered the below described criteria.

International hiring-out of labour is the term used when a foreign enterprise makes staff available to carry out work in Denmark for a Danish enterprise or person. The term is not used if the staff is directly employed by the Danish enterprise/person, works at a permanent establishment of the foreign enterprise in Denmark or the stay in Denmark exceeds 183 days.

Whether an agreement is to be considered international hiring-out of labour or contract work often leads to tax cases, as the distinction is not easy to make and has tax implications for the Danish enterprise/person.

If an agreement is considered international hiring out of labour, the Danish enterprise/person must withhold 8 pct. of the gross salary in social security contributions if the hired-out employee is not covered by social security in the home country and 30 pct. of the remainder, in total approx. 36 pct. If an agreement on the other hand is considered contract work, the Danish enterprise/person will not have to withhold tax or social security contributions.

Basically, the labour is regarded hired-out if the Danish enterprise/person has the rights to the work produced and bears the responsibility and risk.

When the Danish tax authorities consider this, the following circumstances - among others - point to the labour being regarded as hired-out:

• The Danish enterprise/person exerts overall leadership of the work and gives instructions to the labour.

• The work is performed at a workplace controlled by the Danish enterprise/person bearing the responsibility of damages or delays resulting from mistakes by the labour.

• The price of the labour is calculated by the hour, by piecework or if there in other ways exist a connection between the price and the wages paid to the employees.

• The Danish enterprise/person provides the majority of tools and materials.

• The Danish enterprise/person has influence on the amount of hired labour and on their qualifications.

As pointed out, the decision is not easy to make and it is therefore advisable to seek professional assistance if your business performs short-term contract work in Denmark to ensure, that the contract and the factual circumstances does not imply hiring-out of labour. In the above mentioned case, the Danish National Tax Tribunal ruled in favour of contract work. However, with professional assistance, a tax case could have been avoided all together.

Questions regarding the above can be addressed to Anders Kiærskou at aek@bdo.dk