No penalty for dissolved general partnership under new penalty regime
However, a penalty can be imposed on the person who ordered or effectively managed the finable offenses committed by the general partnership.
1 November 2017
- Revision of administrative penalty regime
- Additional tax assessment and penalty
- No retroactive force for tax deduction obligation
- Consequences of dissolution of a general partnership for penalty imposition
Revision of administrative penalty regime
A sweeping revision of Dutch administrative penalty law took place 1 July 2009, including the transfer of several general provisions on enforcement and administrative penalties to the General Administrative Law Act (Algemene wet bestuursrecht). One of those provisions is that summary offenses can be committed by both natural persons and legal entities. General partnerships, civil partnerships, shipping companies, and special-purpose funds are put on a par with legal entities for the imposition of sanctions, as is done under criminal law. The Dutch Supreme Court recently pronounced an interesting judgment on the impact of this link between criminal and administrative penalty law.
Additional tax assessment and penalty
A and B agreed to conduct an employment agency in the form of a general partnership as from 1 October 2009. The partnership contract stipulates that A contributes all its assets into the business, which was conducted as a one-man company until that date. An additional contract dated 31 December 2009 (but not signed until 7 January 2011) shows that the partners intended to set up the general partnership as early as on 1 January 2009. Following B’s resignation, the general partnership was dissolved on 31 December 2009.
This course of events prompted the Tax Inspector to initiate a tax audit, resulting in the imposition of an additional payroll tax assessment and an offense penalty over 2009. Both the additional tax assessment and the penalty were upheld in appeal, although the penalty was reduced.
No retroactive force for tax deduction obligation
The question presented in cassation was whether it is at all possible to impose a tax assessment and/or a penalty on a dissolved general partnership. The Supreme Court rapidly formed its opinion on the tax assessment: referring to previous case law it ruled that imposition of a tax assessment in fact implies the mere conclusion that a tax debt has arisen in the respective period. Subsequent dissolution of the general partnership does not deprive the tax assessment of that meaning.
Yet, the highest court of the Netherlands considers that a tax deduction obligation does not arise until the partnership contract is laid down (in writing), unless it is established that the persons involved already acted vis-à-vis one another as partners of a general partnership and presented themselves as such towards third parties. This is to be examined by the court of appeal to which the case is referred back.
Consequences of dissolution of a general partnership for penalty imposition
With regard to the imposed offense penalty, the Supreme Court sets the dividing line at 1 July 2009, the date on which the so-called fourth tranche of the General Administrative Law Act became effective. The penalty regime applicable to that date effectively allowed penalties to be imposed on dissolved partnerships. Since 1 July 2009, administrative penalty law is explicitly based on criminal law on the point of the concept of offender. Criminal law stipulates that prosecution of a legal entity or equivalent entity cannot be initiated once the dissolution of this - legal - entity has been communicated towards third parties. If that provision is applied mutatis mutandis, this means that the administrative penalty can only be maintained if the notification of the proposed penalty imposition or the penalty imposition itself took place before the dissolution of the general partnership was communicated to third parties, for instance, through publication in the trade register.
The Dutch Supreme Court argues that dissolution of a legal entity or an equivalent entity expressly does not rule out imposition of a penalty on the person who ordered or effectively managed the finable offenses committed by that - legal - entity during its existence.
Source: Dutch Supreme Court HR 20 October 2017, 16/05235, ECLI:NL:HR:2017:2655