Extended period for additional tax assessments not contrary to free movement of capital

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Extended period for additional tax assessments not contrary to free movement of capital

The Dutch Supreme Court delivered its final judgment in several cases dealing with application of the extended additional tax assessment period in relation to the freedom of capital movement.

13 June 2017

Introduction

The Court of Justice of the European Union (CJEU) ruled on the sustainability of the Dutch extended period for additional tax assessments as early as 2009, in the Passenheim-Van der Schoot case. An additional assessment can be imposed up to five years back in time in domestic situations, whereas this is twelve years in cross-border situations. In relation to the other EU Member States, the CJEU states that this distinction is basically contrary to the free movement of capital. If the Tax Administration obtains indications about a resident of the Netherlands having credit balances in another EU Member State, or income from them, exceeding the five-year period is solely acceptable if the tax inspector is diligent in obtaining the information required for assessing the tax due and preparing and determining an assessment.

As regards the aforementioned interpretation of the sustainability of the extended period for additional tax assessments in relation to non-EU/EEA Member States, the Dutch Supreme Court subsequently requested the CJEU for a preliminary ruling. The CJEU answered these questions in the affirmative on February 15, 2017.


Stand-still provision

The case involves an interested party who was charged with violation of the Securities Transactions (Supervision) Act 1995. A tax audit was instituted, too, in 2007. In early 2009 it became clear the interested party also had foreign bank accounts. This led to additional income tax assessments being imposed over the years 1998 through 2006 in November 2010. To this end, the inspector invoked the extended period for additional tax assessments.

The interested party wonders whether the Tax Administration has actually been sufficiently diligent. This question, however, can only be discussed if the decision in the Passenheim Van der Schoot case likewise applies to the free movement of capital to and from third countries. Since the issue involved regards a Swiss securities scheme, the infringement on the free movement of capital may be permitted under the stand-still provision as laid down in European law. Under this provision, EU Member States are permitted to sustain certain limitations of the free movement of capital in relation to third countries, if they were already in place on December 31, 1993.


Scope extended period for additional tax assessments

The main issue the Supreme Court struggled with was that the extended period for additional tax assessments is not limited to activities explicitly mentioned in the stand-still provision (including financial services). The CJEU, though, feels this is no impediment to invoking this provision. The CJEU likewise rules that a resident of a Member State opening a securities account with a banking institution outside the EU indeed classifies as capital movement relating to performing financial services as referred to in the stand-still provision of art. 64 TFEU. Application of this provision means the free movement of capital is effectively not violated, so the extended period for additional tax assessments can be applied without any limitations in relation to third countries. The case has now been referred back to the Supreme Court. Nevertheless, bearing in mind the preliminary ruling of the CJEU, this would seem to be the end of the line for the interested party.


Final ruling of the Dutch Supreme Court

Following the said preliminary ruling of the CJEU, the Dutch Supreme Court pronounced their final ruling on June 2, 2017. The highest court of the Netherlands ruled that the extended additional tax assessment period can be applied. The Supreme Court rejected the interested party’s position that the statutory power to impose an additional assessment had lapsed on account of the lack of resolve on the part of the Tax Inspector. The Court further argued that the exercise of that power is not contrary to the general principles of proper administration (more specifically the principle of due care and the proportionality principle) either. Finally, the Supreme Court rejected the position that the Tax Inspector’s failure to resolutely impose an additional tax assessment constitutes a violation of the right of ownership guaranteed under art. 1 first protocol, ECHR, since no excessive burden is involved for the interested party.


Source:

  • CJEU February 15, 2017, C-317/15, ECLI:EU:C:2017:119
  • HR June 2, 2017, 14/00528, ECLI:NL:HR:2017:843
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