Failure to tick trust question sufficient to reverse and increase burden of proof | Deloitte Netherlands

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Failure to tick trust question sufficient to reverse and increase burden of proof

The Supreme Court has ruled that questions in the return need not be limited to the taxation over the relevant period. Any failure to answer one or more questions means the required return has not been filed.

3 June 2022

Involvement in trust property

The Supreme Court has ruled in a case involving the question of whether the failure to answer questions in the tax return, in this case about the taxpayer’s involvement in trust property - also referred to as the trust question -, leads to the conclusion that the burden of proof must be reversed and increased.

The case revolved around a member of the Board of Advisors of a foundation (‘C Ltd.’) established under Panamanian law. In 2008, this person received a fee of EUR 5,200 in total. According to the interested party, this was an untaxed guarantee fee. The Tax Inspector, though, argued that it was a taxable remuneration for work on behalf of C Ltd. Apart from the correction as such, it is disputed whether the burden of proof should be reversed or increased.

Response is mandatory

Both the Court and the Court of Appeal in The Hague ruled that the interested party had wrongfully failed to report the income and that failing to answer the trust question in the tax return was sufficient to conclude that the required return had not been filed. In his opinion on this case, Advocate General Niessen disagreed. He doubted whether the Tax Inspector could request for information in a tax return for a certain year, if this information was not directly relevant to the taxation of that year. However, the Supreme Court answered that the Tax Inspector had been correct in requesting the information. It suffices for the requested information to be of importance for the taxation of that taxpayer, even if it concerns other dates or periods than those to which the tax return relates.

Required return

The Supreme Court concludes that the required return has not been filed if one or more questions in the return, such as the trust question, have not been answered. However, reversing and increasing the burden of proof does not apply if the observed deficiencies are of insufficient weight to justify doing so. If reversing and increasing the burden of proof does apply, it is limited to the tax debt to which the incomplete return related. And to points of dispute for which the missing answers could have been relevant.

Information obligations

Under article 47 of the State Taxes Act, the Tax Inspector can also ask questions beyond the scope of a tax return. The Supreme Court concludes that it should also be established whether the failure to answer them, or answering them incorrectly, justifies reversing and increasing the burden of proof. If the Tax Inspector takes an information decision that has been irrevocably established, this does not automatically lead to a reversal and increase of the burden of proof. It must first be established whether the deficiencies found are sufficiently serious. And if so, for which points of dispute the missing or incorrect answer to the questions asked can be relevant.

Conclusion

The Supreme Court concluded that the Court of Appeal was correct in ruling that the failure to answer the trust question in the tax return meant that the required tax return had not been filed and that the burden of proof should be reversed and increased. The Court of Appeal’s findings show that answering the trust question could be relevant for the income tax of the interested party over the year 2008. The arguability (if any) of the position that the received payments are not taxable in the Netherlands does not alter this.

Finally, the Supreme Court considered that wrongfully failing to answer the trust question in the income tax return is usually sufficient to justify a reversal and increase of the burden of proof. The rationale is that it creates the chance of too little - income - tax being levied, because the inspector is unable to trace the existence of a trust or trust property, any assets transferred to that entity, and any income that may be related to it.


Sources:

  • HR 27 May 2022, 20/01587, ECLI:NL:HR:2022:767
  • Conclusion A-G 12 January 2021, 20/01587, ECLI:NL:PHR:2021:36
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