Late objection against implicit decision determining loss set-off
Supreme Court argues that interested party should have objected against non- set-off of 2010 loss against prior years’ taxable profits within six weeks of determination of this loss.
20 August 2018
Earlier this year, the Dutch Supreme Court ruled that the Tax Inspector may still determine a loss incurred in any fiscal year after expiry of the respective assessment period, and may even deviate from the tax return in so doing. The rationale behind this ruling is that loss set-off is not possible without a decision determining a loss. However, a recent Supreme Court ruling shows that taxpayers should be careful about the proper manner of loss set-off. A Dutch private limited liability company (bv) that (outside the period for objection) still wanted to opt an extended three years’ period of tax loss carry-back available from FY2009 up to and including FY2011, in exchange for a shorter period for tax loss carry-forward (six years), met with refusal.
The bv in question had sustained a EUR 269,005 loss over 2010. On 13 July 2013, the Inspector determined this loss in a decision against which an objection may be lodged, and at the same time imposed the nil assessment over 2010. Since the bv had also incurred a loss in 2009 and it had not opted for extended tax loss carry-back in its 2010 tax return, the Inspector did not see any reason to proceed to set-off against the 2007 and 2008 taxable profits. Yet a request to that effect was obviously formulated in the 2011 tax return, given that the Inspector set off the loss for that year against the 2008 taxable profit in a decision dated 27 July 2013.
In a letter of 27 August 2013, the authorised representative of bv still requested the Inspector to set off the 2010 loss against the 2007 and 2008 taxable profits. The Inspector qualified this letter as a late notice of objection against the 2010 corporate income tax assessment. The The Hague Court of Appeal judged that the bv could effectively no longer opt for application of extended tax loss carry-back after expiry of the period for raising objection. The Supreme Court recently confirmed this judgment.
The Supreme Court first argued that the binding force ensuing for a taxpayer from a choice whether or not to apply extended tax loss carry-back made in their corporate income tax return can only be challenged in the proceedings against the decision determining the tax loss set-off. After all, the said choice does not affect the amount of the assessment or the loss of the year itself, but only the set-off of this loss against profits realised in other years.
However, the Inspector did not have to explicitly decide on the loss set-off: there was no reason for so doing, since loss carry-back to 2009 was not possible and the taxpayer did not opt for the extended facility in its 2010 tax return. As the letter of the law provides that tax loss carry-back should be simultaneous to determination of the loss, the lack of this implicitly constitutes a decision by the Inspector against which an objection may be lodged. Yet this objection was filed too late. Since the Supreme Court also denied the existence of an excusable failure to meet the deadline, the bv was left empty-handed.
Source: HR 17 August 2018, 16/05120, ECLI:NL:HR:2018:1317