The G- account (blocked escrow account)

A contractor can limit the risk of liability based on the Chain Liability by depositing part of the invoice amount into a blocked account of the subcontractor, the so-called G-account or in Dutch 'G-rekening'. 

The functioning of the G-account can be explained as follows: 

The functioning of the G-account  

A contractor can limit the risk of liability based on the Chain Liability by depositing part of the invoice amount into a blocked bank account of the subcontractor, the so-called 'G-account'. 

The funds received on a G-account can only be used by the subcontractor for paying the payroll taxes due or for transferring funds to the G-account of another involved party in the chain (sub-contractor) for this purpose. 

The use of a G-account is not mandatory. 

It is not possible to deposit directly into the bank account of the Tax Authorities.  

The contractor is only protected against the Chain Liability when deposited into a G-account but the indemnity then only applies up to the amount deposited. It is therefore important for the contractor to determine the correct amount of payroll taxes payable by the subcontractor.  

The contractor transfers a pre-agreed part of the invoiced amount to the G-account of the subcontractor. The contractor can then pay the payroll taxes due from the G-account directly to the bank account of the tax office. If all conditions are met (see further: 'Conditions for indemnification in case of payment into the G-account'), the contractor can then not be held liable anymore based on the Chain Lability Rules. However, if and to the extent the subcontractor’s debt is higher than the transfer of the contractor to the G-account, the contractor can still be held liable for the remaining amount. 

The use of the G-account 

The following parties can use the G-account: 

• the main contractor,  
• the contractor,    
• the subcontractor 

The main contractor receives an invoice from the contractor/subcontractor. The main contractor agrees with the contractor/subcontractor which part of the invoice amount will be transferred to the G-account. 

With the payment order for the transfer to the G-account, the main contractor states: 

• the number of the contractor's invoice and 
• any other identification features on the invoice 

The contractor can then pay the payroll taxes due from the G-account, or transfer amounts to the G-account of the subcontractor(s) for this purpose. These amounts must be destined to pay the payroll taxes due by the subcontractor(s). 

Conditions for indemnification in the event of payment to the G-account 

The amount that the contractor pays into the G-account of the subcontractor only protects the contractor against the contractor’s Chain Liability when all of the following conditions are met: 

• The subcontractor's invoice must meet the VAT invoicing requirements (Article 35a of the VAT Act 1968). 
• In addition, the invoice must contain the following information:
• the number or characteristic of the agreement based on which the subcontractor has performed the subcontracted work 
• the period in which the work was performed 
• a description or characteristic of the work for which payment is made 
• The invoice data must be easy to find in the contractor's administration 
• The contractor must maintain a man-hour administration in which the tax authorities can determine (the extent of) the Chain Liability for the work done by sub-contractors. 

Only if the contractor meets all above stated conditions, the contractor is not liable up to the amount that the contractor has deposited into the G-account of the subcontractor. The indemnity also applies if the amount deposited did not ultimately end up with the tax authorities, unless the contractor knew or could reasonably have suspected that the subcontractor would not use the amount deposited in the G-account (for whatever reason) for paying the payroll taxes due. 

The application for the G account  

To open a G-account, the entrepreneur (contractor or subcontractor) must submit a written request to the tax authorities (standard application form). If this request is granted, the tax authorities will conclude a so-called 'G-account agreement' with the bank. 

After receiving the application, the tax authorities assess whether the applicant is eligible for a G-account. 

To be eligible for a G account, the applicant must (A) perform work as a subcontractor or going to do this shortly and (B) be liable for the withholding of payroll taxes in this respect. 

An 'on-subcontractor', which does not have the obligation to withhold payroll taxes, can apply for a G-account based on its VAT number.  

The tax authorities do not cooperate in the creation of a G-account if: 

• the applicant does not meet the conditions as outlined above, or 
• the applicant already has a G-account, or 
• the tax authorities expect that the applicant will use the G-account incorrectly. 

In the event of a rejection of the application, the tax authorities must inform the applicant in writing within a reasonable period, stating the reason(s) for the rejection. 

The G-account agreement 

The G-account is always linked to a wage tax number. It is possible to link more than one sub-wage tax number to the G-account. 
In the G-account agreement, the parties involved include a number of standard provisions, which aim to achieve the following: 

• the balance of the G-account may only be used to pay wage tax (and in case of Hirer’s Lability) VAT in connection with the contracting of work (or in case of Hirer’s liability: the hiring of staff) or to transfer it to another G-account in connection with this contracting (or hiring of staff). 
• The tax authorities obtain a lien (pledge or 'pandrecht') on the balance of the G-account, which implies that the tax authorities have priority recourse on the balance of the G-account for the payment of the payroll tax (and in case of Hirer’s liability: VAT) owed by the subcontractor if the subcontractor does not pay this debt.   

Opening a G-account at the bank 

If the tax authorities agree to the creation of a G-account, the applicant will receive a G-account agreement signed on behalf of the tax authorities. 
The applicant must go to the bank within one month with this agreement with the request to open a G-account. If the bank agrees, the bank will also sign the agreement and assign a G-account number. After issuance of the G-account, the bank returns the signed copy of the agreement from the tax authorities to the tax authorities. The bank will keep the original copy of the agreement for as long as the G-account remains intact, but at least for seven years. 

Changing the G-account agreement 

A G-account agreement is linked to the (sub-) wage tax numbers to which this agreement applies. If changes occur in the link to these numbers, in the name or in the business activities, the tax authorities must be informed as soon as possible (standard mutation form).  

The correct amount to be deposited into G-account 

The contractor may decide for himself which part of the invoice is paid into the G-account of the subcontractor and it is advisable to determine this amount as accurately as possible. If too little is deposited, the risk of liability for the deficit remains, and if too much is deposited then the subcontractor cannot access these (unnecessarily blocked) funds. For this, the subcontractor must first request unblocking (see also 'Unblock the G account').  

The exact amount of the deposit is usually agreed in advance between the subcontractor and contractor. This is a matter of negotiation between parties, where a reasonable estimate of the amounts owed by the subcontractor in terms of payroll tax (and in case of Hirer’s liability; VAT) should be the starting point.  

The transfer to a G-account after the subcontractor has lost control over its assets, for instance in case of bankruptcy, does not indemnify the contractor. 

Transfer from the G-account to the tax authorities  

For transferring payments from the G-account to the tax authorities, the payment order must contain the payment reference number that is stated on the invitation to file a tax return or which belongs to the payment instructions of a tax assessment.   

Unblock the G-account  

If at some point the balance of the G-account becomes higher than the payroll taxes (and in case of Hirer’s liability; the VAT) due for which the amounts have been paid into the G-account, the subcontractor can file a request with to the tax authorities to release this surplus (standard form). 

The tax authorities assess the subcontractor's filing and payment behaviour and the nature of the amounts deposited to determine whether there is a surplus. If the unblocking request is approved, then first settlement with other tax debts of the subcontractor follows. Any remainder will be paid into the subcontractor's 'normal' bank account after the tax authorities have received this amount from the bank. 

Closing the G-account  

The G-account agreement must be terminated upon termination of an enterprise. A written request must be submitted for this (standard form). If the G-account has a balance on termination, this balance will in principle be unblocked (under the normal conditions for unblocking).  

During the term of a Decree Broad Moratorium (BBM) pronounced by the court, a request for termination of the G-account agreement will not be rewarded. This in connection with the enforcement of the pledge. A new termination request can be made after the term of the BBM expired. 

Change of legal form - end of G-account  

The G-account agreement must be terminated if the legal form of the subcontractor changes. For the new entity, a new G-account needs to be applied for in the name of this new entity. It is therefore in principle not possible to transfer the G-account agreement to the new entity if the legal form changes. 

Unilateral cancellation of the G-account by the tax authorities 

The tax authorities can unilaterally cancel a G-account agreement if: 

• there is no or incorrect use of the G-account 
• no work in subcontracting is being done anymore 
• the subcontractor no longer has employees  
• the subcontractor has been declared bankrupt 
• the subcontractor has been granted a moratorium on payments and the administrator (curator) does not agree with the continuation of the G-account 
• the debt protection scheme for natural persons applies to the subcontractor. 
• No objection or (higher) appeal is possible against the unilateral termination of the G-account agreement. However, it is possible to have this decision reviewed by the civil court.  

Incorrect use of the G-account  

If funds are received on the G-account from another G-account that is not intended for the payment of payroll taxes (and/or VAT in case of Hirer’s liability in connection with the lending of personnel), these amounts must be immediately repaid to the G-account from which these funds come from. Otherwise, the G-account will be used incorrectly. The tax authorities can use various measures to prevent or stop this incorrect use, including: 

• unilaterally cancelling the G-account of both parties 
• claiming damages in civil court 
• the initiation of criminal prosecution.