Reasonably arguable position concept in tax penalty law and criminal law clarified
The Supreme Court recently pronounced several relevant rulings on how to apply the limitation of interest deduction of art. 10a CITA 1969. As part of this, it has also included important considerations regarding the question as to when a position can be considered to be reasonably arguable.
16 May 2017
In one of our recent news items we informed you about several relevant rulings the Supreme Court has pronounced on interest deductions. The item discussed a banking group whose tax structure had been set up specifically to benefit from the so-called Bosal gap. In addition to application of the limitation of interest deduction of art. 10a CITA 1969 and fraus legis, the Supreme Court dealt with the Tax Administration’s authority to impose additional assessments and taking a reasonably arguable position. This item focuses on the latter aspects.
In the cases referred to above the Amsterdam Court of Appeal ruled that the additional tax assessments would have to be annulled. According to the Court of Appeal, prior to imposing the final assessments the inspector already had information available based on which he could have reasonably doubted the correctness of the tax returns filed. He should have started an audit. Failing to do so meant he was guilty of omission by a public servant. According to the Court of Appeal, bad faith as a reason to impose the additional assessment was not an argument either. There had not been any intention to provide the inspector with incorrect information or to deliberately withhold the correct information.
The Supreme Court endorses the above rulings and notes that deliberately withholding the correct information solely regards situations where taxpayers have the obligation to provide this information (either in their tax returns or at the request of the inspector) after which they deliberately fail to do so. This not what happened here, though. The interested parties expressly did not have the statutory obligation to provide the inspector of their own accord with information on the relationship between the legal acts performed and the objective of the investments by the foreign participations. This means it is not possible to impose an additional assessment, while solely the corrections over the years in which no final assessment had yet been imposed will be maintained.
Reasonably arguable position
The Amsterdam Court of Appeal likewise ruled that since the interested parties took a reasonably arguable position in the tax returns, the offense penalties imposed on them had to be annulled as well. The Supreme Court concurs with this ruling. It considers that it is not possible to impose an offense penalty if the taxpayer could and was permitted to reasonably assume that the tax return it had filed was correct, because it was based on a reasonable interpretation of tax law. In such a case it cannot be stated that too little tax being levied or paid was due to willful misconduct or gross negligence by the taxpayer, even if the tax court later considers the related position to be incorrect.
In addition, the Supreme Court considers that objective criteria should be applied to assess the question as to whether this regards a reasonably arguable position. The legislative text, the legislative history, the interpretations argued for in specialist literature, and the status of case law when the tax return was filed are all relevant factors in this respect. How the taxpayer had envisaged its interpretation of tax law when submitting the tax return is irrelevant. In other words, it is not necessary for the taxpayer to have assumed his actions were correct at the time.
A new aspect is the Supreme Court now extending this interpretation to tax criminal law. Taking a position that can objectively be regarded as a reasonably arguable position cannot be considered to constitute the intentional filing of an incorrect or incomplete tax return.
Source: HR April 21, 2017, 15/05278, ECLI:NL:HR:2017:638