At a glance: tax law enforcement in Netherlands

Enforcement

How does the tax authority verify compliance with the tax laws? Does this vary for different taxpayers or taxes?

The Dutch Revenue Service (DRS) can verify compliance with the tax laws in various ways, including by way of:

• Reviewing or scrutinising a specific tax return: for practical reasons, the DRS does not review and scrutinise each tax return submitted, but only a (relatively) small number based on a risk analysis. The DRS publishes specific topics that it will focus on in its review in a certain year. For 2022, the DRS will, for instance, focus on concealed assets, inexplicable expenses, VAT-fraud, misuse of turbo-liquidations and fraud with covid 19-support measures.
• A tax audit: usually an audit commences with a letter from the DRS to the taxpayer in which the audit is announced. The taxpayer and the DRS may agree in advance on the scope, duration and the officials involved in the audit. A tax audit is labour-intensive and its duration varies on a case-by-case basis. Therefore, tax audits usually only take place where there are indications of non-compliance or fraud. The investigation methods employed are (among others) data comparison, statistical analysis, random checks and forensic accounting.
• An exchange of information upon request by the DRS, either during its review of a tax return or before imposing a tax assessment. Although disclosure in most cases requires a prior request for information by the DRS, the taxpayer is, in a limited set of circumstances, required to spontaneously disclose information to the DRS.
• 'Horizontal monitoring': the DRS and certain taxpayers may enter into a horizontal monitoring covenant and develop an enhanced and more transparent relationship in which they cooperate on the basis of mutual trust and understanding. As part of this enhanced and more transparent relationship, the DRS and the taxpayer often include compliance provisions, such as a tax-control framework. Horizontal monitoring is not available for individuals.

In addition to the above domestic possibilities, the DRS can make use of international exchange of information with foreign tax authorities and international joint tax audits in its efforts to verify compliance with the tax laws.

Verification by the DRS of a taxpayer's compliance with tax laws is generally similar for all taxpayers. However, exceptions are possible two ways. A taxpayer may expect fewer reviews and/or tax audits in case 'horizontal monitoring' is applied, if similar informal arrangements have been agreed upon with the DRS or if a formal advance tax ruling or advance pricing agreement is in place. A taxpayer may expect more or stricter reviews or tax audits, or both, if non-compliance by that taxpayer has been been detected in the past or if it is active in a sector that is monitored by the DRS more strictly because of increased risks of non-compliance in that sector.

What is the typical procedure for the tax authority to review a tax return and how long does the review last? What limitation periods apply?

The duration of a review by the DRS depends on the type of tax, the type of taxpayer and the complexity of the tax return. For practical reasons, the DRS does not scrutinise each tax return submitted. Based on a risk analysis, only a (relatively) small number of tax returns are scrutinised. Each year the DRS publishes the number of tax returns that have been reviewed and the number of tax audits conducted. In addition, the DRS publishes specific topics that it will focus on in its review.

The DRS should review a tax return for return-based taxes and impose a tax assessment within a period of three years, starting from the moment the tax liability arises or in certain cases the end of the period to which the relevant tax return relates. In case of a new fact, a supplemental tax assessment may be imposed until five years have lapsed, starting from the moment the tax liability arises or in certain cases the end of the period to which the relevant tax return relates. This period is extended to 12 years if the supplemental tax assessment relates to income from foreign sources. These periods are extended further with the period for which the taxpayer has requested and received an extension for filing its tax return.

For self-assessment taxes, a supplemental tax assessment may be imposed until five years from the end of the calendar year to which the relevant tax return relates or in which the refund has been granted, which for certain real estate-related items is extended to 12 years.

Furthermore, the statutory limitation period may be extended in cases where too little tax was initially levied by the DRS due to an error that could have reasonably been known by the taxpayer. In this case, the extension is limited to a period of two years after the moment when, if no tax assessment was imposed, the decision was taken not to impose a tax assessment or, if a tax assessment was imposed, it was imposed.

What types of information may the tax authority request from taxpayers? Can the tax authority interview the taxpayer or the taxpayer’s employees? If so, are there any restrictions?

In accordance with the General Taxes Act (GTA), taxpayers are required, upon request by the DRS, to disclose all information that may be relevant for the levy of Dutch taxes in respect of them, as well as all books, documents, records and other data carriers that may reveal facts that in turn may be relevant for the levy of Dutch taxes in respect of them. The disclosure obligation applies to individuals, entrepreneurs and corporate entities, irrespective of whether they are domestic or foreign taxpayers. Employees are not obliged to provide the DRS with information about their employer. The DRS may not interview employees without the permission of the taxpayer.

What actions may the tax authority take if the taxpayer does not provide the required information?

Non-compliance with a request for disclosure by the DRS may result in:

• the burden of proof being shifted from the DRS to the taxpayer and being increased, requiring the taxpayer to demonstrate convincingly that any subsequent tax assessment is incorrect. The burden of proof is shifted and increased only if the DRS has issued a decision holding the taxpayer to be non-compliant, and such decision has become irrevocable (due to expiry of the statutory period for filing an objection or the exhaustion of legal remedies against the decision);
• a default or culpability penalty being imposed; and
• preliminary relief proceedings being initiated by the DRS before a civil court judge, where the DRS would ask for disclosure of the information requested subject to a judicially imposed penalty for non-compliance.

How may the tax authority collect overdue tax payments following a tax review?

The DRS may collect any amount of Dutch taxes formally due mainly through two alternative methods. These methods do not differ depending on whether or not collection is sought following a tax review. 

First, the DRS is authorised to use all the means available to a creditor under Dutch private law to collect Dutch taxes on the basis that the amount formally due represents a receivable of the DRS. For example, the DRS may attach a taxpayer’s property or, in a limited set of circumstances, pierce a taxpayer’s corporate veil. If a third party has curtailed the collection possibilities of the DRS, the DRS may even claim damages (in the amount of the Dutch taxes formally due) from the third party for having curtailed tax collection possibilities.

Second, the DRS has specific authorisation to collect Dutch taxes on the basis of the Collection of Taxes Act. This authorisation allows the DRS to more easily collect Dutch taxes than a regular creditor is able to do under Dutch private law, for example, by more easily attaching a taxpayer’s property. Also, this authorisation extends the collection possibilities of the DRS beyond those of a regular creditor, for example, by holding the directors of a corporate entity secondarily liable for the amount of Dutch taxes due by this entity, or seizing property that is present on the taxpayer’s premises without belonging to the taxpayer.

The DRS may freely opt for whichever method it deems most appropriate for collection purposes. It may, however, only switch from one method to the other if the collection interests outweigh the interests of the taxpayer and any third parties.

How are penalties calculated?

The maximum amount of a default penalty is fixed and ranges from €136 to €5,514 (in 2021), depending on the specific offence committed. The amount actually imposed may be less as a result of mitigating circumstances, which the DRS is required to consider when imposing a default penalty. The amount of a culpability penalty is fixed as a percentage of the amount of Dutch taxes that are deficient as a consequence of the offender’s intent or gross negligence, with the maximum being 100 per cent. As a starting point, the DRS generally assesses a culpability penalty at 50 per cent for offences being committed intentionally and at 25 per cent for offences being committed grossly negligently.

What defences are available if penalties are imposed?

Generally speaking, four defences are available against default and culpability penalties. These penalties may not be imposed or may be mitigated in case of:

• a defensible position – a default penalty or culpability penalty is not imposed if the offence results from a position that the taxpayer has taken but that is defensible, on the basis of current case law and literature, to such an extent that the taxpayer could reasonably be considered to have acted in accordance with Dutch tax law. A defensible position can only concern the interpretation of tax law or the legal qualification of the facts;
• absence of all guilt – a default penalty or culpability penalty is not imposed if an offence under Dutch tax law occurs while the taxpayer has taken all precautionary measures that could reasonably have been required in the case at hand to prevent this offence;
• mitigating circumstances; or
• voluntary disclosure (although the possibilities in this respect have been limited over the past few years).

In what circumstances may the tax authority impose penalties?

The DRS may impose an administrative penalty on a person who committed an offence under Dutch tax law. The DRS may impose a penalty on a taxpayer who:

• failed to file, or to file on time, any tax return or to pay in full, or to pay on time, self-assessment taxes; or
• failed to disclose information to the DRS that it is required to disclose (in each case, a default penalty).

In addition, the DRS may impose a penalty on a taxpayer or withholding agent who:

• intentionally filed an incorrect or incomplete tax return;
• intentionally or grossly negligently reported less than the amount of taxes formally due;
• intentionally or grossly negligently failed to pay in full, or to pay on time, self-assessment taxes; or
• intentionally or grossly negligently failed to disclose information to the DRS that it is required to disclose spontaneously (in each case a culpability penalty).

For a culpability penalty, the DRS has the burden of proof of demonstrating (by making a plausible case) that the taxpayer had a culpable state of mind at the time when it committed the offence. The requisite culpability involves intent or gross negligence.

Further, the DRS may impose a default or culpability penalty on a person who, while not being a taxpayer:

• co-committed the offence with the taxpayer, who could also be professional advisers such as tax advisers, lawyers, civil law notaries or accountants;
• instigated or incited the commission of the offence; or
• (only in respect of a culpability penalty) acted as an accessory to or in the commission of the offence.

Culpability penalties imposed on professional advisers may be published on the website of the DRS, including the name of the adviser, the offence committed and the amount of the penalty. This information will remain available for a period of five years. Culpability penalties imposed on taxpayers and default penalties will not be published.

Can criminal consequences arise as a result of tax non-compliance? Are these different for different types of taxpayers?

Tax non-compliance may result in criminal consequences as a matter of general Dutch criminal law or Dutch tax criminal law. For the purposes of Dutch tax criminal law, a taxpayer (regardless of being a business entity, individual or director) may be subject to (figures for 2022):

• a maximum of six months’ imprisonment or a fine of up to €9,000 for the intentional failure to disclose information, to maintain books and records or to cooperate with a review by the DRS, or for only doing so incorrectly or incompletely;
• a maximum of four years’ imprisonment or a fine of up to €22,500 (or, if higher, up to the amount of underpaid Dutch taxes) for the intentional failure to file a Dutch tax return on time or to correctly and completely disclose information to the DRS; or
• a maximum of six years’ imprisonment or a fine of up to €90,000 (or, if higher, up to the amount of underpaid Dutch taxes and for certain underpaid taxes up to three times such amount) for the intentional filing of an incorrect or incomplete Dutch tax return or forgery of its books and records.

Further, a taxpayer who has committed an offence under Dutch tax criminal law may be subject to a criminal penalty in respect of, for example, forgery or money laundering, if the offence under Dutch tax criminal law is considered separate and distinct from the offence under general Dutch criminal law. The criminal penalty for forgery of documents is a maximum of six years’ imprisonment or a fine of up to €90,000 (in 2022). Subject to aggravating and mitigating circumstances, the criminal penalty for money laundering is a maximum of six years’ imprisonment or a fine of up to €90,000 (in 2022).

What is the recent enforcement record of the authorities?

Subject to limited exceptions, the DRS is disallowed from disclosing to any other person information that it has obtained as a result of, or in connection with, the enforcement of Dutch tax law, beyond what is necessary for the proper assessment and collection of Dutch taxes. Accordingly, the DRS’ enforcement record is not available publicly.