Supreme Court clarifies scope of extended additional tax assessment period
The extended additional tax assessment period does not apply to income earned in the Netherlands that is only paid into a foreign bank account at a later stage, beyond the view of the Tax Administration.
21 March 2018
Under Dutch tax law, tax inspectors are prohibited from automatically reconsidering tax assessments they have assessed. For them to do so would require new information which they did not have at the time of imposing the assessment and which they could not have reasonably known about either. An exception applies when taxpayers act in bad faith, or if it involves a reasonably apparent mistake.
The period within which an additional assessment can be imposed is limited, too. Basically, an inspector’s competence to impose an additional assessment expires five years after the period over which the tax is due. An extended additional tax assessment period of twelve years applies to any income earned and assets held abroad. Whether the extended additional tax assessment period applies has been the crux of a great many proceedings conducted over time. Recently, the Supreme Court had to rule once again on the scope of this provision. And it has produced two very interesting rulings.
Not earned abroad
Both cases involved entrepreneurs operating shops in the Netherlands and concealing part of their cash revenues for the Tax Administration. Sometime later, the concealed revenues (or part of it) were paid into Luxembourg bank accounts. Still, as they availed themselves of the voluntary disclosure scheme, the interested parties as yet revealed their records in 2014. The inspector subsequently imposed additional tax assessments in respect of income tax and national insurance contributions, covering several years. The concealed income was taxed as business profits (box 1) and the cash at bank was considered to be box 3 income.
Both cases involved a dispute about whether the extended additional tax assessment period applied to the supplementary demand for income tax in respect of the business profits. The interested parties claimed this involved income earned in the Netherlands, which was only paid into a foreign bank account at a later stage, beyond the view of the Tax Administration. The Supreme Court concurs with this argument and rules that such income is beyond the scope of the extended additional tax assessment period. The time passed between receiving the funds and paying them into a foreign bank account is irrelevant in this case. Application of the extended additional tax assessment period does apply, though, if income earned with activities performed in the Netherlands is paid directly into a foreign bank account. A situation that does not apply to either one of the cases. The State Secretary’s appeals in cassation have no ground.
Division of the burden of proof
From a law of evidence point of view, too, the rulings are interesting. Because the Supreme Court rules that the reversal and complication of the burden of proof, applicable if taxpayers fail to file the required tax return, neither relates to the inspector’s competence to impose an additional assessment nor to the application of the extended additional tax assessment period. Those questions should be answered according to the regular rules of the obligation to provide facts and burden of proof. According to the Supreme Court, any other opinion would fall short of the legal certainty of taxpayers. The Supreme Court additionally states that whether the extended additional tax assessment period applies will have to be determined per income or asset component.
The above rulings by the Supreme Court have made the scope of the extended additional tax assessment period and the division of the burden of proof in additional assessment cases quite a lot clearer. The practice will most certainly give these rulings a warm welcome.
- HR 16 March 2018, 16/06097, ECLI:NL:HR:2018:359
- HR 16 March 2018, 17/01663, ECLI:NL:HR:2018:303