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Commencing disputes

In the Netherlands, the General Administrative Law Act provides for a wide-ranging framework governing the relations between citizens and their administration. The relevant legislation contains the principles any Dutch governmental body must adhere to in the process of making its decisions. Moreover, it contains the rules governing the consequences of these decisions, particularly the right of individual citizens to challenge these. Although most of these rules apply in matters of taxation as well, the General Tax Act provides for specific rules regarding matters of taxation, such as filing tax returns and the establishment of (additional) tax assessments, as well as procedural rules regarding administrative appeal and litigation in tax matters. While some of these rules merely add to the general framework, others deviate from it.

i Mandatory objection phase

Within the applicable legal system, a tax dispute typically commences with a taxpayer filing a notice of objection against an assessment or a formal decision issued by the tax inspector. This administrative appeal procedure with the tax administration must be completed prior to lodging an appeal to the tax courts, meaning that the initial appeal to court (i.e., to the lower court, in the first instance) is always launched by the taxpayer, namely against a (negative) decision by the tax inspector on such notice of objection.

The purpose of this mandatory objection phase is twofold. On the one hand, the procedure forces the tax administration to review decisions taken by an individual tax inspector, which should eliminate apparent mistakes and ensure a uniform and consistent approach to certain matters within the administration. On the other hand, administrative appeal is supposed to have a sort of filter function: since disputes do not immediately go to court, they may still be resolved between the parties at the preceding stage. Even though in some cases parties clearly have a different view on the application of the law (meaning that the administrative appeal procedure is essentially a repetition of moves – eventually the magistrates will need to decide on the matter), generally the obligation for the administration to reconsider its earlier decision reduces the number of cases brought before the Dutch tax courts.

ii Matters subject to objection

In relation to tax matters, administrative appeal is possible against tax assessments imposed on the taxpayer, as well as any formal decision taken by the tax inspector. In this regard, the specific procedural rules for tax litigation (as laid down in the General Tax Act) deviate from common Dutch administrative law (as laid down in the General Administrative Law Act). While the latter provides for an open system of legal remedies in that any decision taken by the administration is in principle subject to objection and appeal, for tax purposes the system of legal remedies is more or less closed.

In principle, a taxpayer can only come up against those decisions that are explicitly open to objection (and subsequent appeal to court). In contrast, if a decision taken by a tax inspector is not explicitly subject to objection and appeal, its effects can only be challenged in court once these have led to an unfavourable tax assessment. This applies for instance with respect to an advance clearance or ruling request: if this is denied, the taxpayer has no legal remedy against that and can only await the first tax assessment resulting from the relevant fact pattern (or abandon from that pattern in light of the uncertainty regarding its tax consequences).

Apart from tax assessments, taxpayers may also challenge notifications determining the amount of tax losses, essentially 'negative' tax assessments. Moreover, the taxpayer may request (and if necessary challenge) formal decisions regarding the application of certain facilities, such as tax consolidation (fiscal unity) or rollover relief.

Nowadays the tax inspector also has the possibility to issue an information notification, stating that a taxpayer has failed to comply with certain information obligations. If the taxpayer disagrees, that particular notification can be challenged, avoiding the need to await a tax assessment that is based on that missing information (or to litigate the matter before a general court without specific tax expertise).

iii Statute of limitations

As regards taxes that become due upon imposing an assessment formalising the obligation to pay (such as personal and corporate income tax), in principle the inspector must impose such assessment within three years after the end of the relevant financial year. If the taxpayer was granted an extension for filing the tax return for the said year, a similar period of extension applies to the deadline for imposing the related assessment.

Once a final tax assessment has been imposed, as a rule the tax inspector may no longer impose an additional assessment. However, at present a final assessment containing an apparent error can still be adjusted within two years of the date of such assessment, in order to avoid the possibility that taxpayers could benefit from evident mistakes within the tax administration.

Otherwise, the tax inspector may impose an additional assessment only if certain facts come to his or her attention that he or she could not be aware of previously (or if the taxpayer has acted in bad faith in relation to those facts). In any case, the statute of limitations expires within five years of the end of the relevant financial year (for certain foreign-source income this is increased by seven years), again adding any period of filing extension granted.

Likewise, as regards taxes that are not formalised through issuing an assessment (such as value added tax (VAT) and wage tax), the tax inspector can make an adjustment by imposing an additional assessment. However, also for these remittance-based taxes, the statute of limitations expires within five years of the end of the financial year during which the relevant tax liability arose (for certain foreign-source income this is potentially increased by seven years).

iv Start of investigation or dispute

Since tax return filings (and payments) nowadays are more or less automatically processed, increasingly the trigger point for the administration to start an investigation tends to be information coming to its attention, either through a (regular or specific) tax audit or more or less incidentally. Other than the statute of limitations for imposing additional assessments, there is no specific time frame for an examination to be concluded. In practice, assessments are often imposed just to prevent the expiration of the statute of limitations.

As before, the trigger point for the taxpayer to start a dispute continues to be the receipt of an assessment deviating from the return previously filed. As said, such assessment must first be challenged in an objection procedure, within six weeks of its date. If the administrative appeal is not (entirely) honoured by the inspector, the taxpayer may lodge an appeal with the (lower) district court against that decision. Depending on the court's verdict, subsequently the taxpayer or the inspector may lodge an appeal with the (higher) court of appeal.

Ultimately, the parties may appeal to the Dutch Supreme Court. Where the dispute mainly concerns the application of the law, parties may agree to skip the procedure before the court of appeal and go to the Supreme Court directly. The courts may also request a preliminary ruling on the relevant matter of law from the Supreme Court (i.e., within the context of a pending appeal).

In each instance, the appeal must in principle be launched within six weeks of the date of the government decision or court verdict that is the subject of the appeal.