Supreme Court finds no proof of application of zero rate to have been intentionally incorrect | Deloitte Netherlands


Supreme Court finds no proof of application of zero rate to have been intentionally incorrect

Although the Court found that the entrepreneur should have realised that he could not use his records to convincingly argue that the cars had been transported to another Member State, this does not yet prove wilful intent.

10 February 2022

Negligence penalty

If a taxpayer is guilty of wilful intent or gross negligence in failing to pay a self-assessed tax debt, or to do so in due time, the Tax Inspector may impose a negligence penalty capped at 100% of the additional tax assessment. However, under the Tax Administration’s policy the Tax Inspector imposes a penalty of 50% in the case of wilful intent and 25% in the case of gross negligence, unless there are aggravating or mitigating circumstances.

Wilful intent involves a wilful act or omission, or at least a wilful acceptance of the substantial risk of underpayment of tax. Gross negligence, on the other hand, involves the violation of a standard of care. The accusation would then be that the taxpayer should have known that his actions would result in underpayment of tax.

Burden of proof

Although the burden of proving wilful intent or gross negligence rests on the Tax Inspector, a recent Supreme Court judgment shows that (conditional) wilful intent is sometimes assumed too easily. The case in question involved an entrepreneur who traded in used cars and applied the zero VAT rate to cars he supplied to various customers in Italy. However, the Tax Inspector argued that the entrepreneur's records were defective and imposed additional tax assessments and negligence penalties.

The Den Bosch Court of Appeal ruled that the Tax Inspector had convincingly argued that the entrepreneur could be accused of the (conditional) intent to underpay VAT. The entrepreneur should have known that missing or inadequate administrative records barred the application of the zero rate. The available documentation simply made it impossible to convincingly argue that the cars were transported to another EU Member State. Because he provided his advisor with these inadequate documents and had him submit tax returns based on these documents, the entrepreneur failed in his cooperation with the advisor. The Court likewise reproached him for making implausible statements during the hearing and for not having shown any awareness of the culpability of his actions.

Wilful intent or gross negligence

The Supreme Court, though, takes a more nuanced position. It considers that although the entrepreneur should have realised that he would not be able to provide plausible arguments for the application of the zero rate, this does not mean that the entrepreneur had acted with intent. What’s more, the Court of Appeal's finding that the entrepreneur failed to disclose anything at the hearing and showed little remorse, does not automatically mean that his errors were intentional. Hence, the case has been referred to the Arnhem-Leeuwarden Court of Appeal for a reassessment of whether it was right to impose the negligence penalty.

Source: HR 4 February 2022, 20/00457, ECLI:NL:HR:2022:124

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