Supreme Court clarifies scope of duty of disclosure of third-party information  | Deloitte Nederland


Supreme Court clarifies scope of duty of disclosure of third-party information

The duty of disclosure of third-party information is not limited to third parties with whom a taxpayer maintains business relations. Nor is this duty is limited to information available in the provider's own records.

23 November 2021

Provision of information about third parties

At the Tax Inspector’s request, any person is obliged to provide the data and information necessary to be able to properly collect their taxes due. Parties required to keep records are subject to the additional requirement that they must provide data and information at the Tax Inspector's request that may be relevant to the taxation of third parties. Legal entities, natural persons liable to deduct and transfer payroll tax, entrepreneurs, and recipients of income from other activities are required to keep records.

Work-related expenses scheme and standard-practice test

Any allowance or benefit in kind provided by an employer to an employee is essentially considered to be pay for payroll tax purposes. Yet the work-related expenses scheme enables employers to designate certain allowances and benefits in kind as final levy components. The taxation of these allowances and benefits in kind is thus shifted to the employer. Application of the work-related expenses scheme requires that it is standard practice to designate a certain allowance or benefit in kind as wages for final levy purposes. The burden of proof of this standard practice lies with the Tax Inspector.

Recently, the Dutch Supreme Court gave judgment in a case where the Tax Inspector used information obtained from third parties to determine whether designating a package of bonus shares as wages for final levy purposes is standard practice. In order to substantiate their claim that it is not standard practice to designate such a package as a final taxable income, the Tax Inspector had issued a survey among 88 companies active in the same industry as the interested party. In the survey, these companies were asked whether they or any of their affiliated companies had provided such bonuses to employees. The interested party believed that the Tax Inspector had exceeded the limits of the duty of disclosure of third-party information (art. 53 Dutch State Taxes Act, AWR) by so doing and appealed to the Supreme Court. It argued that the duty of disclosure only applies to third parties who maintain a business relationship with the interested party, and that third parties can only be obliged to provide information that is included in their own accounting records.

Scope of the duty of disclosure of third-party information

The Court of Appeal of The Hague ruled in this case that the Tax Inspector was indeed allowed to conduct a survey among a large number of similar employers in order to assess the appropriateness of the payments designated by the withholding agent, and that the restriction imposed by the interested party did not arise from the law. Advocate General Niessen concluded, however, that the power to request information from third parties is not intended for so-called “industry surveys”, but only for surveys involving specific taxpayers who are in a direct or indirect relationship with the interested party. Moreover, the Advocate General found that the Tax Inspector’s actions were not proportionate, because they did not first try to obtain the necessary information in a less elaborate way.

However, the Supreme Court did not object against the method followed by the Tax Administration. The Court of Appeal rightly ruled that neither the legislative text nor the history of the enactment of article 53 of the Dutch State Taxes Act provide any grounds for the limitations asserted by the interested party. The only room for excluding evidence would arise if the interested party had demonstrated facts and circumstances showing that the Tax Inspector had acted in a manner so contrary to what can be expected from a properly acting government that its use as evidence must be considered inadmissible in all circumstances. However, this was not the case. The appeal in cassation was dismissed.

Source: HR 12 November 2021, 20/03229, ECLI:NL:HR:2021:1595.

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