Supreme Court limits calculation of interest on tax has been saved
Supreme Court limits calculation of interest on tax
During a period when the Tax Administration can already dispose of a tax amount due to the earlier payment of a provisional assessment, no interest on tax should be charged, the Supreme Court ruled.
23 November 2022
Default interest rules
The interest on tax rules derive from the rules on default interest under the General Administrative Law Act. Under these rules, an administrative body charges interest if an interested party fails to meet its payment obligation in due time. Conversely, the administrative body reimburses interest if an obligation to pay has been wrongfully imposed, or if a decision to pay an amount has not been made in due time. Application of this doctrine of default to assessment taxes implies that interest will be charged if a taxpayer fails to request (a review of) a provisional assessment in a timely manner, or fails to file a personal or corporate income tax return within the regular deadline. By contrast, Tax Inspector must pay interest on tax if, in response to a request or return, they are too late in issuing a (provisional) personal or corporate income tax assessment with a refundable amount of personal or corporate income tax.
However, the Supreme Court recently ruled that the scheme should not result in interest on tax being charged for a period when the Tax Administration already had the disposal of the tax amount due to the earlier payment of a provisional assessment.
The case revolved around the corporate income tax due for FY2016 and the interest on tax charged in the process. The tax assessment procedure was as follows:
- On 30 January 2016, a provisional 2016 corporate income tax assessment was imposed for a taxable amount of over EUR 12.83m. This provisional assessment was paid in 2016.
- On 5 March 2018, the interested party filed its 2016 corporate income tax return with a taxable amount of about EUR 11.46m.
- On 24 March 2018, the Tax Inspector issued a revised provisional assessment in accordance with the return filed. This resulted in a refund of around EUR 345,000, on which no interest on tax was paid.
- Subsequently, the Tax Inspector conducted a tax audit. This resulted in corrections that primarily related to 2014, but also affected the taxable amounts for 2015 and 2016.
- In response to the audit report, the interested party filed a revised 2016 corporate income tax return on 5 September 2018 with a taxable amount of over EUR 11.51m.
- On 22 September 2018, the Tax Inspector imposed a further provisional assessment in accordance with the revised tax return. In the process, interest on tax was charged for the period 1 July 2017 to 3 November 2018 (deadline for payment of the provisional assessment).
Supreme Court ruling
The issue in dispute is whether the interest on tax was charged correctly. The Court of Appeal of The Hague decided that the interest calculation was consistent with the legislative text. This is not altered by the fact that until 24 March 2018, even more than the final tax amount due had been paid under a provisional assessment. The Court of Appeal did accept the assertion that interest on tax should be limited to the period from 8 December 2017 pursuant to the beneficial tax policy (begunstigend beleid). Both parties appealed against this decision to the Supreme Court.
Following Advocate General Wattel, the Supreme Court considered that it cannot be accepted that interest on tax be charged for a period in which the Tax Administration already had the tax amount at their disposal because of the payment of an earlier provisional assessment. This would create an inexplicable deviation from the default interest rules from which the interest on tax rules derive. As a result, the calculation of interest on tax may not start until 24 March 2018, the date when a refund was granted. Only from that date is there an interest disadvantage for the Tax Administration. The Supreme Court further considered that charging interest on the payment period of the (provisional) assessment is allowed. Thus, the interest calculation end date in this case remains 3 November 2018.
It should be noted that from 1 January 2023, the Tax Inspector will have legal power to reduce interest on tax charged insofar as the tax due has already been levied or paid. However, the Supreme Court is one step ahead of the legislature and now rules that interest calculation is simply not allowed in those cases. It remains to be seen how the Tax Administration will deal with this in practice, as it will presumably require a substantial adjustment in their systems.
The Supreme Court's ruling does not mean that the Tax Inspector's new legal power becomes entirely redundant. This is because it has a broader scope of application, as it also covers cases in which taxation of one taxpayer is related to the granting of a refund to another taxpayer (communicating vessels). Consider, for example, a change in distribution of joint income components between tax partners.
Source: HR November 18, 2022, 21/00170, ECLI:NL:HR:2022:1673