This Tax Alert will address some recent developments in procedural tax law in The Netherlands. We will discuss some interesting developments in tax legislation, more specifically regarding (i) the implementation of DAC6, (ii) procedural tax law aspects of the Withholding Tax Act 2021 and (iii) publication of penalties for tax offences of professionals. Furthermore, we will reflect on (iv) relevant recent tax case law regarding the defensible position concept.
Chambers Tax Controversy 2020 Practice Guide
We would also like to draw your attention to our contribution to the Chambers Tax Controversy 2020 Practice Guide. In this guide, we comment and elaborate on various topics relating to tax controversy in the Netherlands. You can access the guide through this weblink.
Recent developments in tax legislation
The EU Mandatory Disclosure Directive (“DAC6”) has introduced a disclosure requirement for intermediaries and/or taxpayers. DAC6 requires the reporting of certain cross-border tax planning arrangements that are perceived to be aggressive.
Potential deferral of reporting deadlines
Due to COVID-19, EU Member State representatives have recently reached agreement to allow an optional six-month deferral of reporting deadlines for DAC6. The optional deferral of reporting deadlines is still subject to approval by the European Parliament. DAC6 entered into force on 25 June 2018, and will come into effect on 1 July 2020. DAC6 has retrospective effect; it applies to all cross-border arrangements in respect of which the first implementation step has occurred on or after 25 June 2018. The Netherlands has not yet made public whether the reporting deadlines will be deferred in case the European Parliament approves the optional deferral of reporting deadlines.
DAC6 in relation to additional tax assessments
Under Dutch tax law the Dutch Tax Authorities (“DTA”) can generally only impose an additional tax assessment (navorderingsaanslag) with regard to Corporate Income Tax (“CIT”) when it has discovered a ‘new fact’ (exceptions exist, for example in case of taxpayers acting in bad faith). A provision was added to the General Tax Act (“GTA”) (Algemene wet inzake rijksbelastingen) which expressly provides that a fact that a tax inspector has (or should have) become known only through a DAC6 report can qualify as a ‘new fact’. The effect of this provision can be questioned, considering that the taxpayer is free to inform the inspector of the arrangement reported under DAC6, for example through an explanatory note to the tax return or in a separate letter.
(ii) Procedural tax law aspects of the Dutch Withholding Tax Act 2021
A conditional withholding tax (“WHT”) will enter into effect as per 1 January 2021, on intragroup interest and royalty payments to taxpayers who are resident in low tax jurisdictions and in certain cases of abuse. The applicable tax rate will be equal to the standard Dutch CIT rate. The WHT Act 2021 (Wet bronbelasting 2021) has several procedural aspects, which can have serious impact and thus should be carefully reviewed.
Additional tax assessments
The DTA will have the extraordinary right to choose on whom to impose additional tax assessments (naheffing): on the withholding agent or on the taxable person (i.e. the recipient of the interest/royalty payments). The DTA will not be required to demonstrate that too little tax is levied due to the failure to comply with tax law by someone else than the withholding agent in order to impose an additional assessment of WHT on the taxable person.
The scope of the existing information requirement (informatieverplichting) established in the GTA will, with respect to WHT, be extended and brought into line with the scope of the WHT Act 2021. The information requirement with respect to WHT will include all information that can be relevant for the levy of WHT that is in possession of (i) the beneficiary, (ii) a third party that (directly or indirectly) holds a qualifying interest in the withholding agent, or (iii) an entity that forms part of a collaborating group which together holds a (direct or indirect) qualifying interest in the withholding agent.
Obligation to actively provide information
Under the WHT Act 2021, the withholding agent will be obliged to actively provide correct and complete information that may be of importance to the DTA for the levy of WHT (inlichtingenverplichting). Information should be provided within two weeks after the withholding agent has become known with the fact that information was not, not correctly or not completely provided. Deliberate failure or failure caused by gross negligence of a withholding agent to meet the obligation will be qualified as a tax offence, and can be penalised as such.
Liability of directors
A provision will be added to the Dutch Collection of State Taxes Act (Invorderingswet 1990) as per 1 January 2021, which extends the persons liable for WHT. The provision holds (i) the directors of the withholding agent, (ii) the taxable person, and (iii) the directors of the taxable person jointly and severally liable for WHT (due by the withholding agent, due by the withholding agent with respect to payments of which the taxable person was the beneficiary or due by the taxable person, respectively). Directors can escape liability by demonstrating that the failure to pay the WHT due cannot be attributed to him. The provision explicitly states that directors or taxable persons residing outside of the Netherlands can be held jointly and severally liable for WHT.
(iii) Publication of penalties for tax offences of professionals
As per 1 January 2020, new rules apply according to which the DTA may publish penalties for tax offences of professionals (Openbaarmaking vergrijpboetes opgelegd aan medeplegers die beroeps- of bedrijfsmatig bijstand verleenden
). The Dutch government has introduced these rules against the background of further combatting tax avoidance. The objective is to improve transparency by informing the public about professionals who are involved in facilitating tax evasion or allowance fraud. Despite the fact that counteracting tax avoidance is of great importance, these publication rules can have severe consequences for professionals in terms of their private and professional lives.
Publication of penalties: what, who, how
The main rule with respect to the publication of penalties follows from the new article 67r of the GTA. Based on this new article, certain irrevocable tax penalties (vergrijpboeten
) imposed to co-perpetrators (medeplegers
) of tax offences, such as tax advisors, notaries, accountants and lawyers, may be published on the website of the DTA. The published information contains, inter alia, the name of the professional, the offence for which the penalty is imposed and the amount of the penalty. The published information will be available for a period of five years. Penalties for tax offences of professionals related to the WHT Act 2021 will also fall under the scope of the publication rules. It should be noted that penalties imposed on taxpayers do not fall under the scope.
Safeguarding of legal rights
The Dutch legislator intended to provide the publication rules with some safeguards. Imposed penalties for tax offences of professionals are not ‘automatically’ published. Both the decision to impose the penalty, as the decision to publish the penalty are decisions against which an objection may be lodged (voor bezwaar vatbare beschikkingen
). This means that the professional may subject these decisions to judicial assessment. Only irrevocable (onherroepelijke
) penalties can be published, ten days after both decisions become irrevocable. Furthermore, the professional must be given the opportunity to share his point of view (zienswijze
) before the decision to publish the penalty is made. Moreover, the tax inspector may not decide for publication if the professional is harmed disproportionally in his interest (see below).
Balancing of interests
The tax inspector needs to balance the interest of transparency and the public against the impact of publication on the private life of the professional. The decision for publication should be proportional. The Dutch Ministry of Finance published a regulation, which provides for an assessment framework in this respect (Regeling openbaarmaking vergrijpboeten
). Relevant circumstances are, inter alia, the amount of the penalty, the risk of recidivism, whether the professional is subject to disciplinary law, lapse of time since the offence and personal circumstances. Furthermore, one of the responsible directors at the DTA must approve a decision on publication.
Legal soundness: criticism
Undoubtedly, counteracting tax avoidance is extremely important. This conclusion is not affected by the importance of effectiveness, necessity and proportionality of rules in general. The publication rules could be questioned in that respect. Several authors in tax literature expressed criticism on, inter alia
, the legal soundness and necessity of these rules. Different convincing alternatives to achieve the goal of transparency have been proposed in tax literature, but have not been adopted by the legislator.
Recent case law
(iv) The defensible position concept in recent case law
According to the GTA a tax penalty can be imposed on a taxpayer if, inter alia
, too little tax was levied due to wilful misconduct or gross negligence of the taxpayer. The GTA allows under circumstances that the penalty is imposed at the time the tax assessment (aanslag) or additional tax assessment (navorderings/naheffingsaanslag
) is issued.
In case law the defensible position (pleitbaar standpunt
) concept has been developed, which precludes the DTA from imposing a tax penalty on a taxpayer if certain conditions are met. In recent case law, the Dutch Supreme Court provided further guidance in relation to the defensible position concept. A taxpayer should have a defensible position if – at the time of filing the tax return and according to objective standards – he could and may have had the view that his interpretation of the law was correct. A taxpayer should also be allowed to rely on sources (such as parliamentary history and case law) and opinions (such as tax literature and conclusions of advocate-generals) he was not aware of at the time of filing the tax return, but which came to his knowledge at a later point in time.
In a very recent case, not dealing with tax penalties but with the question of whether the burden of proof should shift to the taxpayer, the defensible position concept was also addressed (Supreme Court, 29 May 2020, no. 18/02266, ECLI:NL:HR:2020:970
). The case however also has relevance for situations in which a tax penalty is imposed. It can be derived from this case that the defensible position concept is only relevant to cases in which the interpretation of tax law is at stake, including the legal qualification of the facts. Accordingly, there does not seem to be room to rely on the defensible position concept in case there is for example a tax dispute concerning the valuation of shares or real estate. This may however work out differently if the dispute does not only concern facts, but (also) a legal qualification of those facts. For example, if based on the facts of the case the taxpayer argues that it is (or is not) a taxpayer in a certain jurisdiction. In this recent case, the Dutch Supreme Court also made clear that if the court in first instance (Rechtbank
) accepts a taxpayer’s position based on legal grounds, it needs to be assumed in following instances that the taxpayer has a defensible position.
Following the above, it is always recommended to review whether it is possible to rely on the defensible position concept in cases where the taxpayer is or may be confronted with a tax penalty. Of course, the defensible position concept does not take away other arguments that could take away or limit a (possible) penalty.