Service agreement

A service arrangement is a document in which two parties agree that one party will provide a service and the other party will pay for that service. This type of agreement is also referred to as a contract of assignment, service agreement or service provision agreement. There are many different service agreements, usually based on the type of service provided.

An assignment agreement in which the service consists of providing ‘consultancy’ is called a consultancy agreement. The overarching characteristic of this type of contract is that no goods are supplied but only services.

In general, a service contract may contain at least the following elements:

1. a description of the services;
2. who provides the services and who has to pay for them;
3. when will the services be delivered and what happens if the delivery is overdue;
4. payment for the services;
5. warranty, liabiity and indemnity;
6. choice of law.

Master Service Agreement

A Master Service Agreement (“MSA”), is a contract aimed at providing services or transactions that take place in the future. The great advantage of an MSA is that it is negotiated and concluded only once. Usually an MSA applies to the entire company, including subsidiaries and affiliates. However, this must be specifically stated in the contract. For the provision of new services, this can be achieved with a simple “Statement of Work” (or purchase order, order form or similar denomination) under the existing main contract (master). A master agreement usually has a long term or even no term.

Many IT agreements in which, for example, software is implemented or customer-specific development takes place are based on a master agreement. The conditions that apply to each transaction are set out in a master agreement, such as payment terms, product warranties, intellectual property, fixed fee or times-and-materials, and dispute resolution. Each individual project can be described in more detail in a “Statement of
Work” (SoW), under the MSA. The SoW can describe, among other things, the specific problem to be solved, the planning, the price, hours, when delivery will take place and how acceptance of the services will take place.

Assignment agreement

A contract of assignment is very similar to an employment contract, but it is not the same. The main difference is that in an employment contract there is an employer-employee relationship based on authority. In a contract of assignment, this relationship of authority between employer and employee is missing.

For Dutch clients and for self-employed persons who pay tax in the Netherlands, it is very important to work under an assignment agreement, both factually and contractually. Should the Tax and Customs Administration, on the basis of the actual wording of the agreement and how it is effectively implemented, determine that there is a disguised employment relationship, it may be that:

1. the principal is regarded as the employer, with the result that payroll tax must be paid on all payments made or to be made to the contractor
2. the contractor is no longer regarded as an independent entrepreneur, with the result that the deductions are lost, with potentially substantial taxation as a result. In order to prevent a disguised employment contract, a Declaration of Labour Relationship (Verklaring Arbeids Relatie, VAR) was drawn up until 1 May 2016. Since the abolition of the VAR, as a self-employed person you can work best with a Model contract approved by the Tax and Customs Administration. If you work according to these model agreements in terms of content and fact, then the legal relationship is clear and there is no question of an employment relationship. The model contracts have been drawn up by the tax authorities in cooperation with external parties (sectors, trade unions, sector organisations). The model contracts can be downloaded from the site of the Tax and Customs Administration, but it is wise to first have them checked by a lawyer and/or by the Tax and Customs Administration.