The scope of the Dutch Revenue’s authority is broad, but it does not include the unrestricted right to impose additional assessments because the final assessment proves to have been imposed for an insufficient amount. The Dutch Revenue must bear the consequences of certain errors. New case law was recently published indicating more clearly which errors can still be rectified, as well as those which cannot. This is a welcome development in terms of legal certainty.Noteworthy Court of Appeals decision
On May 29, 2009, the Den Bosch Court of Appeals rendered a noteworthy decision on a dividend distribution that was correctly reported in the tax return as profit from a substantial interest, but which was only partly included in the final personal income tax assessment. The dividend withholding tax was set off as an advance levy for personal income tax purposes, but the dividend itself was not processed as part of the income. The amount of the assessment imposed was therefore insufficient. The Court of Appeals held that the tax inspector was precluded from imposing an additional assessment for the difference.The case
The case involved a 2004 dividend distribution of EUR 400,000 from the taxpayer’s own private company with limited liability. The dividend and the dividend withholding tax available for set-off were properly included in the relevant personal income tax return. The assessment, however, was too low. The shareholder was vigilant and notified the Dutch Revenue of this fact himself. The tax inspectorate had apparently not yet discovered the error. The tax inspector imposed an additional assessment, to which an objection was filed. The tax inspector denied the objection. The Breda District Court found in favor of the tax inspector. On appeal, however, the Court of Appeals held in the shareholder’s favor, given that the situation involved an error on the part of the tax inspector.New fact
It is not always possible to impose additional assessments. In the relevant statutes, the legislature has prescribed that additional assessments can only be imposed if the tax inspector becomes aware of a “new fact.” A new fact is one that was unknown to the tax inspector, or one that he could not reasonably have been expected to know. The tax inspector’s subjective knowledge is therefore irrelevant. The issue turns on what he could have, and should have, known. Since the dividend distribution was reported in the tax return, the tax inspector could have and should have known about it.Error equivalent to a handwritten or typographical error
Under those circumstances, the tax inspector can impose an additional assessment only if the situation involves a “handwritten, typographical, or equivalent error,” and it must have been immediately clear to the taxpayer that the assessment was too low. In the case under discussion, the taxpayer knew that the assessment was too low (obviously, since he informed the Dutch Revenue of that fact himself), but he disputed the tax inspector’s assertion that the error was equivalent to a handwritten or typographical error. The shareholder’s position was that the situation involved “negligence on the agency’s part” rather than such an “apparent mistake on the agency’s part.”Negligence on the agency’s part
Negligence on the agency’s part precludes the assertion of a new fact. Generally speaking, in fact, negligence on the agency’s part would preclude imposing an additional assessment altogether. The due care exercised by the tax inspector is examined in assessing whether there was negligence on the agency’s part. Changes in the Dutch Revenue’s work processes, and particularly those involving advances in computerization, do not entail holding the Dutch Revenue’s officials to a lesser standard of due care. Established case law holds that the Dutch Revenue must bear the consequences resulting from the work processes it chooses to employ.The final decision
In a case such as this, the court weighs the taxpayer’s right to legal protection against the financial interests of the state. In the case of a tax dispute, this analysis usually turns on a weighing of the facts. What should be assigned more weight, the recognizability of the error or the fact that the tax inspector did not check the assessment in any way? The Court of Appeals, following the Dutch Supreme Court, held that if the tax inspector chooses to pay scant attention to analyzing a tax return, then he cannot later assert that the outcome of that decision was undesired if the assessment proves to be too low. This decision encourages the Dutch Revenue to make sure its actions are correct and taken with due care. This is the type of encouragement that will ultimately benefit the Netherlands as a state, as well as its citizens. Our view is that the Court of Appeals’ holding was correct.