No gross negligence when assisted by an expert advisor


No gross negligence when assisted by an expert advisor

The Supreme Court confirms that taxpayers who engage the services of advisors whom they consider to have sufficient expertise and whose performance should be beyond doubt, are not obliged to examine the details of the respective tax measure to avoid errors.

08 February 2017

Dutch version

Offense penalties

If willful misconduct or gross negligence on the part of a taxpayer is the reason why any tax to be self-assessed and remitted (e.g., payroll tax or VAT) is not - promptly - paid, the tax inspector can impose an offense penalty up to 100% of the tax due.

When it comes to imposing penalties, taxpayers cannot be held accountable for any willful misconduct or gross negligence by advisors they engage. Inspector can only impose offense penalties on taxpayers when they can make a reasonable case that the former are effectively to blame. The Dutch Supreme Court argues this is the case when taxpayers have failed to observe due care in selecting a tax advisor or in cooperating with that advisor. A classic example is a taxpayer who deliberately withholds information from their advisor, which information is required for preparing a correct and complete tax return. The Dutch highest court recently once again ruled on this issue. The case was as follows.

Employee education tax rebate

The interested party’s business operations involved helping benefits recipients find salaried employment. A municipality had placed a number of long-term unemployed persons with the interested party as part of a reintegration project, from 2009 through 2013. In the payroll tax returns the interested party had applied the so-called employee basic qualification education tax rebate (afdrachtvermindering onderwijs startkwalificatie). Following a tax audit, the tax inspector concluded that this tax rebate had been wrongfully claimed, since the interested party did not have the required certificates from the training institute and the Employee Insurance Agency (UWV). Additional tax assessments and offense penalties were subsequently imposed. 

The The Hague Court of Appeal judged that the interested party should have informed itself of the formal conditions for application of the tax rebate and that this, hence, concerns gross negligence. This is not changed by the fact that the interested party engaged the services of an advisor, since this concerned “relatively simple formal conditions” rather than substantive aspects of the tax rebate regime. 

However, the Supreme Court denied the distinction made by the Court of Appeal. The main rule continues to be that when taxpayers engage an advisor they should be able to consider to have sufficient expertise, and whose performance should be beyond doubt, the former is not required to examine the details of the respective tax measure to avoid errors. 

It is now up to the Amsterdam Court of Appeal to find out whether the nature of the relationship with the advisor was such that the interested party should have been able to trust that the tax returns submitted with the assistance of that advisor would be correct. In this respect it is relevant how the responsibilities have been divided between the interested party and the advisory firm it had engaged. In other words, could the interested party assume that the advisor would thoroughly examine whether the conditions for application of the employee education tax rebate for the related employees had been met? If after referral it is established that this is not the case, the interested party may still be found to have been grossly negligent.

Source: Supreme Court February 3, 2017, 16/02451, ECLI:NL:HR:2017:127

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