Supreme Court abandons damage requirement in respect of the principle of legitimate expectations | Deloitte Nederland


Supreme Court abandons damage requirement in respect of the principle of legitimate expectations

Until now, on invoking the principle of legitimate expectations in relation to general information, the Supreme Court required taxpayers to have sustained damage apart from the tax due. That requirement is now being abandoned.

16 November 2021

Surrender of annuity insurance

The interested party in this case effected an annuity insurance policy in 1989 with an effective date of 1 December 1989 and an end date of 1 December 2015. Following the amendment to the Income Tax Act, on 1 January 2001, the policy conditions were changed. This did not change the annual premium payable and throughout the term of the insurance policy the interested party deducted the premiums in his returns for personal income tax/national insurance contributions.

In 2015, with the end of the term of the annuity insurance approaching, the interested party informed about surrendering the annuity insurance early. One of the information sources he consulted to this end was the website of the Tax Administration, where he found a passage listing cases in which no revisionary interest is due. This included the situation in which the annuity insurance was effected before 16 October 1990.

The taxpayer then surrendered the annuity insurance before the term expired, after which the Inspector charged revisionary interest of EUR 37,465 on the surrender when imposing the 2015 assessment for the personal income tax/national insurance premiums.

Principle of legitimate expectations

The interested party invoked the principle of legitimate expectations and argued that he had been given the legitimate expectation that no revisionary interest would be charged on the surrender of the annuity insurance.

The Court of Appeal of The Hague ruled that the Tax Administration’s statement on its website was clear and not open to different interpretations. It very precisely and concretely listed the situations in which no revisionary interest would have to be paid and the interested party could have assumed it to be an exhaustive description of the conditions under which no revisionary interest would be charged. The interested party did not have to reasonably doubt the accuracy of this information, following which an act was carried out (the surrender), resulting in a loss for the interested party that exceeds the statutory tax due (revisionary interest). All conditions for a successful reliance on the principle of legitimate expectations have been met, the Court of Appeal argued. On behalf of the State Secretary, an appeal to the Supreme Court was lodged against this judgment.

Additional damage sustained

The case disputed before the Supreme Court is whether the revisionary interest charged can be regarded as ‘additional damage sustained’. In its 26 September 1979 judgment the Supreme Court first applied this so-called damage requirement. As the Tax Administration should be hindered as little as possible in its informative duty, the taxpayer basically runs the risk of incorrect information. Invoking the principle of legitimate expectations is only successful if the following two conditions are met:

  1. The information must not be so obviously contrary to correct application of the law that the taxpayer could and must reasonably have realised its inaccuracy.
  2. Using this incorrect information, the taxpayer must have performed an act or omitted to perform an act that not only results in the taxpayer having to pay the statutory tax due, but also in the taxpayer sustaining damage, which cannot, therefore, be attributable to what must be levied if the law is applied correctly (damage requirement).

The Supreme Court argued that revisionary interest cannot be regarded as ‘additional damage sustained’, because it arises directly from tax law, but then went on to judge that the above test is no longer compatible with current legal interpretations. The Supreme Court abandoned the damage requirement and formulated a new criterion, in which the key point is whether a taxpayer has performed an act or has omitted to perform an act using that incorrect information, resulting in a higher amount being levied than what the taxpayer thought would be due based on that information. In this case, this criterion has been met, so the Court of Appeal was right to uphold the reliance on the principle of legitimate expectations.

New damage requirement

The Supreme Court ruling is very important, because when relying on the
principle of legitimate expectations in connection with general information or
advice, there no longer needs to be a damage in addition to the additional tax
due. As a result, more taxpayers are expected to be able to successfully invoke
the principle of legitimate expectations.

Source: Supreme Court 5 November 2021, ECLI:NL:HR:2021:1654

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