WESH Zoom-In 1: In-depth explanation of the tax challenges
During the preparation and implementation of We.Service.Heerlen (WESH), various challenges around taxing arose. The municipality of Heerlen held multiple discussions with the Dutch tax authority and successfully negotiated an exemption status for the experimental initiative. We are zooming in on these specific tax challenges, to understand better how taxing regulations were constraining the project, as well how proposed solutions ensured the continuation of the project preparation. The infographic further explains the organisational process of WESH, as well as the monetary process of the local cryptocurrency Heerlens Heitje. It zooms in on the various tax challenges for each of the stakeholders and the target audience of the project.
Wage Tax and Income Tax
In the build-up to the launch of the project, there were many discussions with the Dutch tax authority on taxing the wage for performing the public maintenance tasks and registering these as income. The tax authority regarded the performance of tasks as work and granting valid credits for this work part of the economic process. Their organisational processes as well as the tax regulations did not allow any deviations. Initially, the tax authority wanted to raise wage tax for performers by requiring citizens to register at the Chamber of Commerce as self-employed entrepreneurs. This would lead to a serious hurdle for WESH, since easy access is needed to having people joining in and performing these public maintenance tasks. Citizens are still obliged to register all of their paid labour at their annually tax registration, in order to have their income taxed accordingly. If someone is employed by a company or public entity, then the income tax is withheld from the salary by the employer.
In the build-up to the launch of the project, there were many discussions with the Dutch tax authority on taxing the wage for performing the public maintenance tasks and registering these as income. The tax authority regarded the performance of tasks as work and granting valid credits for this work part of the economic process. Their organisational processes as well as the tax regulations did not allow any deviations. Initially, the tax authority wanted to raise wage tax for performers by requiring citizens to register at the Chamber of Commerce as self-employed entrepreneurs. This would lead to a serious hurdle for WESH, since easy access is needed to having people joining in and performing these public maintenance tasks. Citizens are still obliged to register all of their paid labour at their annually tax registration, in order to have their income taxed accordingly. If someone is employed by a company or public entity, then the income tax is withheld from the salary by the employer.
Value-Added Tax (VAT)
The tax authority ruled that anyone who performs any form of work and have received an award for it, must pay tax. The tax authority made the experimentation by WESH possible, by exempting the task performers of VAT. In principle, all citizens are seen by the tax authorities as entrepreneurs, where they engage in gainful activity. With a maximum of 1,500 euros earnings (1,500 Heitjes) on the platform, the citizens were solely required to register the amount of Heitjes (thus euros) earned on the platform. The WESH project team made sure that all Heerlen’s citizens could have a chance to earn a few Heitjes, without actually stimulating entrepreneurship or oppression on the employment market. A maximum profit should ultimately also ensure that as many citizens as possible can participate.
The tax authority ruled that anyone who performs any form of work and have received an award for it, must pay tax. The tax authority made the experimentation by WESH possible, by exempting the task performers of VAT. In principle, all citizens are seen by the tax authorities as entrepreneurs, where they engage in gainful activity. With a maximum of 1,500 euros earnings (1,500 Heitjes) on the platform, the citizens were solely required to register the amount of Heitjes (thus euros) earned on the platform. The WESH project team made sure that all Heerlen’s citizens could have a chance to earn a few Heitjes, without actually stimulating entrepreneurship or oppression on the employment market. A maximum profit should ultimately also ensure that as many citizens as possible can participate.
Tax Allowances
During the first weeks of the platform in action, the neighbourhood association involved in the project noticed that some citizens were reluctant to register in fear of future consequences by the tax authority. This fear was mainly due to the fact that people were afraid of losing various allowances, after all the earned Heitjes are added to the aggregate income as euros. In theory, this could mean that when the limit is exceeded by only one euro, all relevant allowances over the past year must be repaid. Although the chance of this is not very high, the consequences are such that citizens refused to create an account, just to be on the safe side of things. This fear was further fuelled by a national scandal in the Netherlands in 2020 over ethnic profiling and wrongfully cutting allowances by the tax authorities. As a result the WESH project team lowered the wage for the tasks from 15 to 5 euro an hour to accommodate it as voluntary work. The corollary result is that there are no more interruptions or obligations at all towards the tax authorities, both in VAT and income tax.
During the first weeks of the platform in action, the neighbourhood association involved in the project noticed that some citizens were reluctant to register in fear of future consequences by the tax authority. This fear was mainly due to the fact that people were afraid of losing various allowances, after all the earned Heitjes are added to the aggregate income as euros. In theory, this could mean that when the limit is exceeded by only one euro, all relevant allowances over the past year must be repaid. Although the chance of this is not very high, the consequences are such that citizens refused to create an account, just to be on the safe side of things. This fear was further fuelled by a national scandal in the Netherlands in 2020 over ethnic profiling and wrongfully cutting allowances by the tax authorities. As a result the WESH project team lowered the wage for the tasks from 15 to 5 euro an hour to accommodate it as voluntary work. The corollary result is that there are no more interruptions or obligations at all towards the tax authorities, both in VAT and income tax.
Infographic
Download the pdf below for an enlarged version .
Download the pdf below for an enlarged version .
About this resource
The Urban Innovative Actions (UIA) is a European Union initiative that provided funding to urban areas across Europe to test new and unproven solutions to urban challenges. The initiative had a total ERDF budget of €372 million for 2014-2020.
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