In the Netherlands, tax controversies can arise in various ways. Tax disputes may arise as a result of a tax audit initiated by the Dutch Tax Authorities (DTA), or questions raised by the DTA (for example, after having reviewed a tax return filed by a taxpayer or as a result of a sample by the DTA). It may also occur that the DTA take notice of a transaction in the press, or receive information from foreign tax authorities, which also may result in a tax audit by, or questions from, the DTA.
Generally, it is difficult to pinpoint which taxes and matters give rise to more tax controversies than others. Tax audits of the DTA can have a broad scope and vary from individuals (personal income tax, inheritance tax), small-sized business (income tax) to large companies (corporate income tax). Tax audits can also be focused on levies such as value-added tax (VAT), wage taxes or Dutch dividend withholding tax. From recent case law it can be derived that the DTA do not look favourably at cases in which a mismatch is created by the taxpayer (ie, a deduction of a payment, without an inclusion) or where deductible interest expenses are created artificially (for example, to offset against taxable profits).
In the end, it is up to the DTA whether to initiate a tax audit and sometimes with respect to certain sectors, a standard audit policy is applied; for example, to audit taxpayers belonging to that sector once every few years. The risk of a tax audit can be mitigated or reduced by way of pre-consultation (ie, have pre-empting discussions that would otherwise be conducted after the fact) of the DTA in advance or by applying for an advance tax ruling (ATR) or advance pricing agreement (APA). Under certain circumstances taxpayers also have the possibility to enter into a 'horizontal monitoring' agreement with the DTA (see also below). The aim of such an agreement is to have an interactive relationship with the DTA and to inform and discuss transactions with them on a real-time basis (instead of filing a tax return, which will be reviewed by the DTA and may result in questions).
At this moment, the exact impact of the base erosion and profit shifting (BEPS) project of the Organisation for Economic Co-operation and Development (OECD) on the number of controversies is difficult to indicate. It is, however, the expectation that the number of controversies with respect to cross-border transactions and investments will increase in the coming period, since jurisdictions may interpret the BEPS rules in their own manner. In this respect, the exact impact of EU Anti-Tax Avoidance Directives (ATAD) 1 and 2 (implemented by the Netherlands per 2019 respectively 2020) also needs to be awaited.
If the DTA would issue a tax assessment to a taxpayer that is appealed against by the taxpayer, upon request of the taxpayer, in principle a postponement of payment is granted. Under circumstances this may, however, work out differently; for example, in cases where the DTA would require a guarantee of the taxpayer to safeguard the payment of the tax assessment in the future. The Dutch tax authorities have the possibility to issue – concurrently with the (back) tax assessment – a fine to a taxpayer; for example, in the case of a late filing of a tax return or not paying tax in due time.
The decision of whether to initiate a tax audit is driven by various factors, such as the (tax) attitude and behaviour of the taxpayers, and information derived through company interviews, samples or information from third parties. Based on these factors (amongst others), a risk analysis is made by the DTA to determine whether to carry out a tax audit. In principle there is no time limit within which the audit should be finalised, but of course the Dutch tax authorities do need to take into consideration the time limits within which a tax assessment should be issued to the taxpayer (see further below).
Regarding the statute of limitations rules, a distinction should be made between taxes that are levied by means of a tax assessment issued by the DTA after a taxpayer has filed a tax return (such as the Dutch corporate income tax and personal income tax) and taxes that are based on a self-assessment (such as VAT and wage tax).
With respect to taxes that are levied by way of a tax assessment, the tax inspector is in principle required to issue a (final) assessment within three years after the end of a tax year. Further to that, the DTA have under certain circumstances the possibility to issue an additional assessment to a taxpayer, which in principle needs to be issued within five years after the relevant tax year (under certain circumstances, notably in relation to foreign income, the period of five years is extended to 12 years). To issue an additional tax assessment, a so-called qualifying new fact must be present. This is not required if the taxpayer has acted in bad faith.
With respect to taxes that are based on self-assessment, the taxes are payable shortly after the self-assessment has been made. In those cases, in principle, the tax return is the formal basis for the levy and no separate tax assessment is issued by the tax inspector. In the case of an underpayment of tax, the DTA have the possibility to issue an additional tax assessment to a taxpayer within five years after the year in which the taxable event took place.
In the case of a tax audit, the statute of limitations described above needs to be respected. In practice, the DTA have the authority to issue an ex officio tax assessment if during a tax audit there is a risk of exceeding the terms referred to above.
Tax audits are generally performed at the premises of a taxpayer.
An audit can in principle be performed based on printed documents or data made available electronically. The Dutch tax authorities may perform the audit by reviewing (hard) copies of documents provided by the taxpayer, or via data derived from software applications used by the taxpayer.
In terms of tax audits, the DTA have certain focus areas. For example, within the group of individuals, very high net worth individuals (with assets of more than EUR25 million) are a specific area of attention. When dealing with large companies, combating and preventing tax avoidance is an important focus area, as well as transfer pricing. In this respect, the DTA have the view that (international) tax avoidance can be best tackled in co-operation with other jurisdictions; for example, by way of bilateral or multilateral tax audits. It is also the expectation of the DTA that the Country-by-Country Report(s) that need(s) to be filed will provide further information for tax audit purposes. The same is likely true for filings that need to be made in the future for purposes of the EU Mandatory Disclosure Directive (MDD), which is also known by its acronym DAC 6.
More generally, it is the objective of the DTA that individuals and companies comply with their tax obligations on their own as much as possible. To achieve this, companies have under certain circumstances the possibility to enter into a 'horizontal monitoring agreement' with the DTA, which in essence means that a taxpayer exchanges information regarding its (tax) strategy, tax control framework and transactions that could have a (material) tax impact on a real-time basis. Accordingly, applying horizontal monitoring is expected to result in fewer tax audits for a taxpayer.
It is difficult to assess at this moment whether the rules concerning cross-border exchanges of information and mutual assistance between the tax authorities (on tax audits) has led to a marked increase of tax audits in the Netherlands, as official numbers are not available. However, the general sentiment is that international administrative co-operation may lead to an increase of audits inspired by data or queries that are exchanged.
If a foreign tax authority has questions in relation to a Dutch taxpayer, these questions will be asked by the Dutch tax inspector, which assumes that the Dutch and foreign tax inspector are in contact with each other, but it is also possible that the Dutch tax inspector is assisted in person by a (foreign) tax inspector.
Key points that should be taken into consideration are, for example, the scope of the audit and to ask the Dutch tax authorities (as much as possible) to put their questions in writing, which gives the taxpayer the opportunity properly to think through the questions raised by the Dutch tax authorities.
If a taxpayer does not agree with a tax assessment issued by the DTA (or would like to lodge an objection against a tax that was levied based on self-assessment of the taxpayer; see above), the taxpayer has the possibility to file a so-called administrative appeal against the tax assessment. The appeal needs to be filed within six weeks after the tax assessment has been issued. If a taxpayer does not respect the period of six weeks, the appeal is in principle declared inadmissible. During the administrative appeal phase, a taxpayer has certain rights (such as a hearing and the right to consult its tax file). The aim of the administrative appeal is a reconsideration of the tax assessment by tax inspectors that are new to the case. The initiation of an administrative appeal does not trigger costs for the taxpayer. The administrative appeal is finalised with a decision of the DTA, which can be challenged before a court (see further below). Under certain circumstances, the taxpayer and the DTA may agree to skip the administrative appeal, which, however, is not common practice. Finally, filing an administrative appeal should in principle not put the taxpayer in a worse position as compared to the tax assessment issued by the DTA.
In principle the Dutch tax authorities need to decide on the administrative appeal within six weeks.
Under Dutch law it is possible to lodge an appeal if the Dutch tax authorities fail to decide on the administrative appeal on time (ie, the term to decide on the appeal has passed, the law assumes that a decision has been taken that can be appealed by the taxpayer).
Once the administrative procedure has been finalised (see above), a taxpayer has the possibility to bring the case before a court. In first instance, the case will be judged by a Lower Court (Rechtbank). The procedure in first instance is initiated by way of filing an appeal against the decision made by the DTA during the administrative appeal procedure. The appeal needs to be filed within six weeks after the decision on the administrative appeal, otherwise the appeal will in principle be declared inadmissible. To initiate the appeal, the taxpayer needs to pay a registration fee.
During the appeal, the taxpayer further substantiates the grounds of appeal, whereas the Dutch tax inspector is expected to file a statement of opposition. Under certain circumstances, parties are given the opportunity by the court to respond to each other's views in writing. Parties have the right to file documents with the court ultimately before the start of a ten-day period preceding the date of the court hearing (which in principle is not a public session). During the procedure, the taxpayer does not need to be represented by a lawyer or tax adviser.
During the court procedure in first instance the facts of the case will be debated as well as the underlying tax question. In principle, the court will take a decision within six weeks after the court hearing has taken place. This term, however, may be extended. The decision of the court may be published (for example, on the internet) on an anonymised basis. Finally, the court has the possibility to ask the Dutch Supreme Court (Hoge Raad) for a preliminary ruling, which may occur if it concerns a legal (tax) question that stretches beyond the pending case.
This would depend on the tax question pending. If the case especially deals with the interpretation of tax law, there does not seem to be a need to involve witnesses in the case (unless, for example, an opinion of an expert witness may be helpful to convince the court). On the other hand, in very factual cases, witnesses may be helpful to support your case, especially also in situations where the burden of proof lies with the taxpayer. In those situations, the taxpayer may work with written statements of witnesses or formal statements during the court hearing.
Parties have the right to file documents with the court ultimately before the start of a ten-day period preceding the date of the court hearing, which in principle is not a public session.
This would depend on the case. However, as a general rule, if the taxpayer is the party claiming a deduction or an exemption, the burden of proof lies with the taxpayer and it is up to the Dutch tax authorities to underpin the plausibility of an upward correction.
This would depend on a case-by-case analysis and is not easy to describe in general terms.
In Dutch (tax) case law it is determined that the OECD Commentary is a relevant factor that should be taken into consideration when deciding on a case. The (tax) court(s) also take the jurisprudence of the ECJ and ECHR into account when deciding on cases. The Dutch (tax) court also may defer a case to the ECJ if it deems it relevant.
A taxpayer (as well as the DTA) have the right to file an appeal against the decision by the Lower Court, which should be filed within six weeks after the decision of the Lower Court (a one-time opportunity). In appeal, the case will be handled by a Court of Appeal (Gerechtshof). The procedure before the Court of Appeal is similar to the procedure before the Rechtbank (referred to above).
If a taxpayer or the DTA (or both parties) do not agree with the decision of the Court of Appeal, the parties have the possibility to lodge an appeal with the Dutch Supreme Court (Hoge Raad). In this cassation procedure before the Dutch Supreme Court, parties no longer have the possibility to discuss the facts of the case. The Supreme Court (in short) will only test whether there has been a breach of law, or whether the decision has been inadequately motivated (or is incomprehensible). The procedure in cassation starts with the filing of an appeal within six weeks after the decision of the Court of Appeal. The other party in the procedure will be entitled to file a statement of opposition followed by a reply and a rejoinder. In more important cases, an advocate-general likely will take an (independent) conclusion to give his or her view about the case. Generally, it is not common that a hearing takes place in person or in writing, including pleadings. In its ruling, the Dutch Supreme Court has the possibility to declare the appeal unfounded or founded. In the latter, the Dutch Supreme Court may itself give a final judgment or refer the case to another Court of Appeal.
In first instance and appeal, the tax case is decided by one or three judges, which depends on the type and complexity of a case. Cases before the Dutch Supreme Court are decided by three or, in more difficult cases, five judges. Judges are appointed by way of a royal decree. It is up to the court to determine the composition of the judges that will decide on the case.
There are several ADR mechanisms in the Netherlands to resolve tax disputes between taxpayers and the DTA. The Dutch ruling practice, which may to some extent be considered an ADR mechanism, is covered first. Horizontal monitoring, which serves the purpose of avoiding (future) tax disputes and disagreements between the DTA and taxpayers, is discussed next. Subsequently, mediation is elaborated upon and negotiations as a way to resolve tax disputes between the DTA and the taxpayers. After that, mutual agreement and tax arbitration procedures that are available to taxpayers with a cross-border footprint are briefly discussed.
Dutch Ruling Practice
The Dutch tax ruling practice allows taxpayers to obtain certainty in advance from the DTA on certain transactions in the form of an APA or an ATR. An APA provides certainty in advance on the Dutch transfer pricing treatment of certain intragroup dealings of the taxpayer. It is also possible to conclude a multilateral APA with other jurisdictions involved. An ATR could provide certainty in advance on a variety of Dutch tax topics in relation to particular transactions.
The Dutch tax ruling practice essentially brings forward any disagreement or dispute between the DTA and the taxpayer on the interpretation of Dutch tax law or the Dutch tax treatment of certain transactions. It provides Dutch taxpayers the possibility openly to discuss with tax specialists of the DTA the relevant facts and circumstances of the case at hand, as well as the correct Dutch tax treatment thereof prior to entering into such transactions. If parties come to an agreement, the DTA and the relevant taxpayer enter into an APA/ATR settlement agreement.
However, the conclusion of an APA/ATR settlement agreement does not preclude the DTA from conducting tax audits. Especially in respect of APA settlement agreements, taxpayers may expect regular tax audits from the DTA to check whether the transfer prices that are being used are in accordance with the APA settlement agreement.
Procedural Aspects of the Dutch Tax Ruling Practice
A request for an APA/ATR request is generally filed with the competent tax inspector of the taxpayer. Such request should in any case include (i) a detailed description of the relevant facts and circumstances, (ii) factual information on the relevant companies, and (iii) a list of the other jurisdictions concerned. APA/ATR requests generally have an international angle (eg, cross-border investments, foreign shareholders), in which case the competent tax inspector will forward the request to the international APA/ATR team of the DTA in Rotterdam for a binding advice on the topics addressed in the APA/ATR request.
To the extent necessary, the DTA would follow up questions and/or request further information from the taxpayer on, inter alia, the relevant facts and transactions set out in the request. In the course of the Dutch tax ruling process a taxpayer may thus be communicating directly with the tax specialists of the DTA. The DTA aims to process an APA/ATR request within six to eight weeks. The Dutch State Secretary of Finance has the ambition to implement a revised Dutch tax ruling practice for international tax rulings at the latest on 1 July 2019, which (amongst others) is expected to include the sign-off of the ruling by the Team International Tax Certainty and the publication of a summary of the ruling on an anonymised basis.
Rather than being subject to 'vertical monitoring', which is based on auditing the taxpayer's affairs retrospectively, taxpayers can also be subject to horizontal monitoring. In horizontal monitoring the DTA and the taxpayer formally commit to build and have a relationship based on mutual trust, understanding and transparency. This essentially means that the DTA will rely on the willingness of the taxpayers to file correct tax returns. The taxpayer that is subject to horizontal monitoring, on the other hand, is generally obliged to submit its view on all its relevant (fiscal) matters to the DTA as soon as (practically) possible; the idea is that any possible differences of opinion between the DTA and the taxpayer are resolved before the tax return is filed. Hence, horizontal monitoring may in and of itself also be considered a form of ADR.
Procedural Aspects of Horizontal Monitoring
Horizontal monitoring focuses on large and medium-sized corporate taxpayers being 'in control' of their tax affairs. To be eligible for horizontal monitoring taxpayers should generally have in place a sound tax control framework (ie, robust risk detection). If the DTA and the taxpayer agree to horizontal monitoring, they enter into a horizontal monitoring agreement (handhavingscovenant), which lays down the fundamentals and underlying principles forming the basis of their relationship to achieve an effective and efficient mode of operation. However, a horizontal monitoring agreement does not preclude the DTA from conducting tax audits.
In 2005 the DTA introduced a pilot for mediation to resolve tax disputes/disagreements with taxpayers. Since then, mediation has taken a modest step forward; it is still not commonly used to resolve tax disputes/disagreements with taxpayers.
At any stage of the tax dispute it is possible to initiate mediation. This can be at the request of the DTA or the Dutch taxpayer and, in some cases, through referral by a Dutch tax court. Not all disputes are suitable for mediation. Mediation is in principle generally only suitable for disputes that go beyond the mere interpretation of law. Tax disputes resolved through mediation generally also have a 'personal element' to it; a taxpayer may, for instance, be upset about the way in which he or she was approached or treated by the DTA during a tax audit. During the mediation, the regular administrative or judicial procedure between the DTA and the taxpayer is (temporarily) put on hold. It resumes only if the dispute is not or only partially resolved through mediation. If mediation has only partially resolved the dispute, the regular administrative or judicial procedure resumes, but only in respect of the unresolved items.
Procedural Aspects Mediation
For mediation the DTA usually works with independent mediators that are registered with the Dutch federation of mediators (MFN) (the Mediator). The Mediator should adhere (and is subject) to the mediation regulations and professional conduct standards of the MFN.
The Mediator first meets with the taxpayer and the relevant tax inspector to explain to them his or her approach. A taxpayer may bring his or her tax adviser/lawyer to provide assistance (this may generally be helpful if there are technical legal aspects to the dispute). Both parties then enter into a mediation agreement, which sets out the general terms of the mediation procedure and their procedural rights and duties. Confidentiality plays a pivotal role in mediation. All that is said and done during mediation is in principle strictly confidential and cannot be used by either party in any other context than the mediation. The costs of mediation are generally lower than the costs of a regular administrative and judicial procedure. Generally, if meditation is initiated through referral by a Dutch tax court then both parties have to split the costs of the mediation.
Under the existing ADR mechanisms in the Netherlands (ie, mediation, negotiations and the Dutch tax ruling practice), tax disputes and disagreements between the DTA and taxpayers are generally resolved by means of entering into a settlement agreement.
Under the existing and above-mentioned ADR mechanisms in the Netherlands, tax disputes and disagreements between the DTA and taxpayers are in principle resolved by means of entering into a settlement agreement. The settlement agreement is a Dutch civil law agreement governed by the general principles and provisions of the Dutch Civil Code (eg, the pacta sunt servanda principle and the exception for wilful misconduct). In principle, a settlement agreement is binding on both parties, unless it is contrary to public policy or the accepted principles of morality.
Based on published policy of the Dutch State Secretary of Finance, the DTA is furthermore also prohibited from concluding settlement agreements that are in clear violation of Dutch (tax) law (certain other restrictions are imposed on the DTA as well). In addition, the DTA must at all times abide by the general Dutch public law principles (eg, the general principles of equality, due care, fair play, protection of legitimate expectations) in its dealings with taxpayers. With respect to (the conclusion of) settlement agreements, in some cases this might lead to situations in which parties entered into a valid settlement agreement according to Dutch civil law standards, but the settlement agreement cannot be binding on the taxpayer, because the DTA did not abide by the general public law principles. An example could be a situation in which the taxpayer was not given sufficient time to review and comment on the settlement agreement proposed by the DTA.
Settlement agreements generally also include provisions pursuant to which parties agree and acknowledge to refrain from (continuing) any further administrative or judicial proceedings.
If parties resolve their tax dispute through mediation, they generally enter into a settlement agreement. It is established case law that settlement agreements may also be concluded to resolve disputes/disagreements on the amount of tax due or the applicable interest and/or administrative penalties. However, based on the policy of the Dutch State Secretary of Finance, the DTA is prohibited from settling any dispute/disagreement on applicable interest, administrative penalties and/or legal costs if in combination therewith a trade-off took place between the DTA and the taxpayer on certain other elements regarding the levy and/or collection of taxes.
During the term of an APA/ATR settlement agreement (generally five years), provided that in the meantime there are no major changes in tax law or the underlying facts and circumstances (and in certain cases – as per July 2019 – a change in jurisprudence or policy of the Dutch tax authorities), the DTA may in principle not impose tax assessments in deviation of what is agreed in the APA/ATR settlement agreement. By the same token, the taxpayer can in principle not lodge an objection against a tax assessment that is imposed in accordance with what is agreed in the APA/ATR. In view of the foregoing, the Dutch tax ruling practice is an effective way for taxpayers to obtain certainty in advance and to mitigate tax disputes with the DTA.
Furthermore, at any time the DTA and the taxpayer may try to resolve a (future) dispute/disagreement through bilateral negotiations and bilateral settlement without the involvement of a court or Mediator.
Bilateral settlements between the DTA and the taxpayer do not have a prescribed form or procedure. It is nonetheless relevant to mention that in its (legal) relationship with the taxpayer the DTA is bound by general public law principles (eg, the general principles of equality, due care, fair play, protection of legitimate expectations and by tax laws). This also applies if the DTA and the taxpayer are in negotiations to resolve their tax dispute.
If parties resolve their tax dispute through settlement, they enter into a settlement agreement.
Under certain double tax treaties, taxpayers with a cross-border footprint that are confronted, or are likely to be confronted, with double taxation may apply for a mutual agreement procedure (MAP) to eliminate double taxation emanating from their cross-border activities. In the EU the European arbitration convention (the Convention) and the EU Tax Dispute Resolution Mechanisms Directive, which was adopted on 10 October 2017 by the European Council (the Directive), provide taxpayers with a possibility to initiate a MAP and, if necessary, a tax arbitration procedure to eliminate its double taxation.
The MAP and tax arbitration procedures strictly speaking do not directly involve the taxpayer; the taxpayer is only an interested party to such procedure between two jurisdictions. In view thereof, there will be no further elaboration on these procedures in this section on ADR mechanisms.
See 6.1 Mechanisms for Tax-related ADR in this Jurisdiction.
If a taxpayer is confronted with an (additional) tax assessment, the additional assessment can be increased with interest on unpaid taxes (belastingrente) or interest on overdue taxes (invorderingsrente) and tax penalties. In some cases the upfront payment of taxes mitigates the risk of interest on tax being imposed.
In Dutch tax law three types of tax penalties can be distinguished (two types of administrative penalties and one category of criminal penalties). The legal basis for this is found in the General Dutch State Taxes Act (GSTA), which is the source of administrative law on Dutch taxation/tax laws and, inter alia, sets out the manner in which the DTA can levy Dutch taxes, provides taxpayers with the means to object to infringements of their rights and provides for the legal basis for the DTA to impose administrative tax fines/penalties on Dutch taxpayers in certain situations.
The two types of administrative tax penalties that can be imposed by the DTA on taxpayers are as follows: (i) for minor omissions such as late filing or payment (punishable with minor administrative tax penalties) (verzuimboetes) and (ii) for tax offences (both acts and omissions) involving gross negligence or intention (punishable with administrative tax penalties) that, for instance, deal with the failure to pay taxes in a timely fashion or file tax returns correctly (vergrijpboetes).
The GSTA also provides for criminal penalties. Criminal tax offences are imposed on taxpayers by a Dutch court following a public prosecution by the public prosecutor’s office.
In addition, the Dutch Criminal Code also provides for a legal basis to penalise criminal offences in relation to taxes (eg, forgery of documents, participation in a criminal organisation with the purpose of committing crimes).
Administrative tax cases or tax audits may trigger criminal investigations into a taxpayer's (tax) affairs. Embedded in Dutch (tax) law is the una via principle pursuant to which taxpayers are generally protected from double sanctioning. In other words, a taxpayer's tax offence should be handled by the DTA by means of an administrative procedure or by the public prosecutor by means of criminal procedure. In addition, notwithstanding the fact that administrative (tax) penalties are not criminal penalties, they are – due to their punitive character – for certain purposes characterised as so-called criminal charges. This, for instance, entails that the structure and level of administrative legal protection the relevant taxpayer must have to meet international human rights standards that apply to criminal tax charges.
In addition, the DTA can request taxpayers to furnish them with information for the purpose of, or in connection with, imposing correct tax assessments. The DTA and the prosecutor's office also have the power to impose tax penalties on, or commence tax criminal proceedings against, taxpayers. Tension exists between these powers in light of the nemo tenetur principle (ie, taxpayers have the right to remain silent and not incriminate themselves). In so far as it concerns evidentiary material, the existence of which is dependent on the will of the taxpayer (will-dependent material), the principle is that the surrender of such material may be coerced for purposes of levying tax. However, if a taxpayer is, or will be, subject to punitive charges, the DTA or the prosecutor's office are prohibited to resort to such will-dependent evidence obtained through methods of coercion or oppression. If the DTA cannot exclude the possibility that will-dependent material may also be used in connection with a ‘criminal charge’ against the taxpayer (ie, punitive charges), the DTA must provide safeguards to the taxpayer for it effectively to exercise its right not to incriminate itself. In the event that such will-dependent material is coerced for purposes of levying tax and subsequently used for the purpose of imposing punitive tax penalties, it will be for the Dutch court (or Dutch criminal court) to decide what consequences it attaches to the use thereof; the evidence can then possibly be excluded. However, the taxpayer's privilege against self-incrimination does not extend to the use of materials that exist independent of the will of the taxpayer (will-independent material) and that are obtained from the taxpayer through recourse to compulsory powers.
It is not uncommon that (tax) crimes are discovered during a tax audit or administrative proceedings. It is thus also not uncommon for the public prosecutor's office to commence general criminal law proceedings against taxpayer(s) following, or simultaneously with, the administrative proceeding against the relevant taxpayer(s). This does not necessarily contravene the una via principle if the taxpayer faces two materially different charges. In view thereof, there would be no need to suspend punitive criminal or administrative proceedings while a tax court verifies the amount of taxes due.
First-instance criminal proceedings comprise of two phases. It starts with the pre-trial criminal investigations performed under the supervision of and directed by the prosecutor's office. Subsequently, the investigating judge starts the preliminary judicial investigation. On the basis of these phases the prosecutor's office eventually has to determine whether to (i) drop the case, (ii) settle the case out of court or (iii) prosecute the taxpayer.
A case is generally dropped if the prosecutor's office feels it has insufficient material to prove the charges. The prosecutor's office may also opt to settle the case by means of a transaction, whereby the taxpayer generally has to pay a sum of money to the Dutch treasury and/or fulfil one or more (financial) conditions. If the prosecutor's office decides to prosecute the taxpayer, the trial stage starts, during which the taxpayer (ie, suspect) has the right to be heard. Court hearings are held in public (certain exceptions apply).
Criminal (tax) offences are dealt with by the Dutch criminal courts. There are three levels, beginning with the Lower Courts (rechbanken).
Upfront payment of tax assessments may, in certain situations, help to mitigate interest and penalties being charged (notably interest and penalties imposed on taxpayers for late payment). Penalties due because of tax offences involving gross negligence or intention may generally not be mitigated by upfront payment.
The prosecutor's office may opt to settle a tax criminal case by means of a transaction, whereby the taxpayer generally has to pay a sum of money to the Dutch treasury and/or fulfil one or more (financial) conditions. A transaction can be offered if the crime carries a statutory prison sentence of less than six years. Guidelines on the offering of transactions exist in an effort to mitigate arbitrariness and create uniformity with respect to the cases that are offered transactions.
If a taxpayer or the prosecutor's office wants to appeal a judgment of the district court, it can file for appeal with the competent Court of Appeal (Gerechtshof). Subsequently, parties may bring their case before the Dutch Supreme Court.
It is not uncommon that criminal tax cases commence following, or simultaneously with, regular tax proceedings. However, it generally requires more than transactions that are merely challenged on the basis of tax concepts such as general anti-avoidance rules (GAAR) or transfer pricing rules. An example in the Netherlands that has led to criminal tax proceedings deals with VAT carousel fraud, which generally requires more than one participant. Hence, in the Netherlands taxpayers involved in VAT carousel fraud have been subject to administrative proceedings (eg, failure to file correct tax returns and/or pay the correct amount of VAT, including penalties) and general criminal proceedings; eg, participation in a criminal organisation for the purpose of committing crimes.
Economic double taxation generally occurs between associated enterprises of different states as a result of an upward transfer pricing adjustment by one of the states. Judicial double taxation refers to a taxpayer being subject to tax on the same income in more than one jurisdiction; for instance, because the taxpayer is considered a resident of two jurisdictions and as such is potentially subject to (full) taxation in both jurisdictions. The majority of Dutch cross-border procedures on double taxation relate to economic double taxation emanating from transfer pricing adjustments.
The Netherlands has an extensive double taxation treaty network, the majority of which include a provision to ensure that a contracting state makes a corresponding downward adjustment of the profits of the associated enterprise, if the other contracting state makes an upward adjustment. In addition, there is generally also included an obligation to enter into a mutual agreement procedure to eliminate double taxation. However, the double taxation treaties generally do not impose a binding obligation on both contracting states to eliminate the double taxation of a taxpayer. Approximately 400 disputes are brought up for a mutual agreement procedure by the Netherlands.
Within the EU, the Convention, the origin of which dates back to the EC's proposal for a directive to eliminate double taxation in the case of transfers of profits between associated enterprises in different Member States of 1976 and a White Paper of 1985 on the completion of the European internal market, has been in force since 1995. The Convention provides for the elimination of double taxation by agreement between the member states, including, if necessary, by reference to the opinion of an independent advisory body. Its scope is limited to double taxation as a result of upward adjustments (transfer pricing) and double taxation in connection with permanent establishments. It lacks an enforceable obligation to eliminate double taxation.
The Directive should be implemented by the Member States before 30 June 2019 and should fill the voids of the Convention. It is envisaged that the Directive provides better protection to taxpayers that are faced with double taxation within the EU. Some of its key aspects are that it contains an enforceable obligation to arrive at a resolution for the taxpayer's double taxation, taxpayers have recourse to national courts to unblock procedures, clear and statutory defined procedural timelines have to be put in place and, importantly, the scope is extended to all disputes between Member States that derive from double taxation treaties (eg, disputes in respect of the interpretation and/or application of the double tax treaty, the taxpayer's residency and the applicable withholding tax rate). Recently the Dutch Ministry of Finance published its bill on tax arbitration implementing the Directive (the Bill), which provides improved access and increased involvement for the relevant taxpayer as well as clear and shorter timeframes. With all these aspects, in combination with the obligation for the member states to reach a solution, the Bill hopefully provides for a significant improvement of the existing rules.
The DTA have found it difficult to fight BEPS in cross-border situations. On several occasions the DTA tried to apply the Dutch doctrine of abuse of law (fraus laugis) but – thus far – to no avail. Under the fraus legis doctrine, a tax inspector may substitute a fact pattern that does not lead to taxation by a fact pattern that does if (i) the taxpayer has created a situation in which tax cannot be imposed, but which approximates one in which tax could be imposed; (ii) tax avoidance is the taxpayer’s predominant motive; and (iii) the purpose and intent of the tax law would be frustrated if the non-taxable fact pattern is not treated as a taxable fact pattern.
Fraus conventionis is a doctrine with respect to the application of double taxation treaties under which a (non-taxable) fact pattern may be ignored and substituted by a (taxable) fact pattern under the relevant double taxation treaty to the extent that the former would frustrate the object and purpose of the double taxation treaty. The Dutch Supreme Court has generally not applied this doctrine in cross-border situations and in some cases has even ruled against it. One should be aware that last-minute tax planning to obtain treaty benefits may in some specific cases be vulnerable to a 'substance over form' approach.
The Netherlands signed the Multilateral Convention regarding tax treaty-related measures to prevent BEPS (MLI) in double taxation treaty situations. The relevant measures will amend the double taxation treaties concluded by the Netherlands (the timing thereof depends on the ratification process of its treaty partners). Important changes that will affect all the submitted Dutch covered double taxation treaties relate to the introduction of a principal-purpose test (PPT) and the amendment of the preamble to the extent that double taxation treaties are not intended to create (opportunities for) double non-taxation or reduced taxation. The former probably makes it easier for the DTA to combat BEPS in cross-border situations as it provides ground to prevent the granting of treaty benefits in cross-border situations found to be inappropriate.
The GAAR included in the EU Parent-Subsidiary Directive is designed as a common minimum anti-abuse rule within the EU aimed at preventing misuses of such directive through arrangements or series of arrangements that are not genuine and do not reflect economic reality. In the Netherlands the implementation of the GAAR has been limited to modifications of two existing anti-abuse rules: (i) the corporate income tax anti-abuse rules for foreign shareholders with a shareholding of 5% or more (ie, a substantial interest) in a Dutch resident company and (ii) the DWT anti-abuse rules for co-operatives.
The GAAR included in the ATAD consists of three requirements that should be met to ignore an arrangement or a series of arrangements for the purposes of calculating the tax liability: (i) the main purpose or one of the main purposes is obtaining a tax advantage ('subjective criterion') (ii) that defeats the object or purpose of the applicable tax law ('objective criterion'), (iii) that is/are not genuine having regard to all relevant facts and circumstances. The Dutch government is of the opinion that there is no need for the Netherlands to implement the ATAD GAAR, because Dutch tax law already includes a similar concept, namely that of the unwritten doctrine of abuse of law (fraus legis), see above.
The majority of cases are challenged domestically, although there has been an increase in MAP proceedings. More and more taxpayers are expected to challenge transfer-pricing adjustments as soon as the Dutch legislation implementing the Directive takes effect from mid-2019.
Conclusion of APAs is a common mechanism in the Netherlands to mitigate transfer-pricing litigation in the Netherlands. The common features and procedural aspects have been set out in 6.1 Mechanisms for Tax-related ADR in this Jurisdiction et seq.
The majority of the litigation in respect of cross-border situations comes from transfer pricing issues. Prompted by EU case law from the ECJ regarding the concept of beneficial ownership and tax avoidance, it is expected that the share of withholding tax issues will increase in the coming years. All in all, an increase of tax litigation in cross-border situations is expected; on the one hand, because of the BEPS project and the implementation of the EU regulations countering tax avoidance that should give the DTA new options and instruments to tackle tax avoidance and contest tax positions of taxpayers, and on the other hand, because of the BEPS and EU initiatives that should provide better protection to taxpayers that are faced with double taxation because of having a cross-border footprint.
In this changing global tax environment it is inevitable that tax disputes may eventually arise. However, taxpayers without a comprehensive and sound approach on detecting potential tax risks and the management thereof are not likely to be more vulnerable to scrutiny of the tax authorities.
The administrative appeal procedure is initiated by lodging an objection against a tax assessment or against any other decision of the DTA to which an objection can be lodged. The DTA does not charge costs for handling the objection of the taxpayer. A taxpayer can request a reimbursement for costs incurred in relation to its administrative appeal, which request is granted only if certain conditions are met; eg, the DTA makes a culpable mistake and revisits its earlier decision or the request is filed prior to the objection. The reimbursement of costs is generally around EUR254 (2019), but may be higher depending on the complexity of the case at hand.
If the DTA rules against the taxpayer in the administrative appeal, the taxpayer may decide to file for appeal. If so, the taxpayer has to pay court registry fees at the start of the proceedings, the amount of which varies depending, inter alia, on whether the taxpayer is an individual or a legal entity and the characteristics of the case.
For individuals, the court registry fee for district court tax ligation in first instance amounts to EUR174 (2019) if the appeal relates to dividend withholding tax, turnover tax, excise duties, taxation of passenger cars and motorcycles, consumption tax on non-alcoholic beverages, environmental taxes and customs law. In all other cases, the court registry fee for individuals amounts to EUR47 (2019). For legal entities, the court registry fee for district court tax litigation in first instance amounts to EUR345 (2019) irrespective of the taxes to which the case relates.
At the court of second appeal for tax litigation, the court registry fee for individuals amounts to EUR259 (2019) if the appeal relates to dividend withholding tax, turnover tax, excise duties, taxation of passenger cars and motorcycles, consumption tax on non-alcoholic beverages, environmental taxes and customs law. In all other cases, the court registry fee amounts to EUR128 (2019). For legal entities, the court registry fee for tax litigation at the court of appeal amounts to EUR519 (2019) irrespective of the taxes to which the case relates. A case can be brought before the Dutch Supreme Court. If so, the court registry fees are the same as the court registry fees for tax litigation at the court of appeal (see above). Court registry fees have to be paid upfront.
If the court rules against the DTA or the Dutch State Secretary of the Ministry of Finance in a tax litigation before the Dutch Supreme Court, they have to repay the amount of the court registry fee to the taxpayer. The court may also order the DTA (or the Dutch State Secretary of the Ministry of Finance) to reimburse the taxpayer's legal costs. In addition, in certain specific situations – and only if the taxpayer files a claim to that extent – a court may order the DTA to pay damages to the taxpayer, which could, for instance, be the case if the taxpayer suffers damages as a result of a wrongful act, omission or decision of the DTA.
Mediation may be an efficient option (including in terms of cost) for taxpayers to resolve their tax disputes with the DTA (depending also on whether the taxpayer engages legal advisers, etc). The costs for mediation mainly comprise of the fees of the Mediator, of which the amount typically depends on the time spent.
Apart from the legal fees a taxpayer may incur in the process of negotiating a settlement with the DTA or obtaining advance clearance from the DTA in the form of an APA/ATR settlement agreement, there are no costs associated with these two ways to resolve tax disputes/disagreements with the DTA.
Each year approximately 25,000 tax cases are brought before the Court of First Appeal. In 2017 there was a decrease in tax cases, the main driver of which was that there was less litigation by taxpayers challenging the DTA's valuation of their real property. Certain (municipal) taxes are calculated using as a basis the value of a taxpayer's real property as determined by the DTA. In an effort to lower their tax burden, taxpayers may start litigation on the value of their real property as determined by the DTA. In 2018 there was an increase in tax cases brought before the Court of First Appeal of 7%. What stands out in that respect is that tax litigation under the Dutch Private Motor Vehicle and Motorcycle Tax Act 1992 more than doubled in 2018.
There has been a downward trend with respect to the number of tax cases brought before the Court of Appeals, albeit that there was a slight increase in 2018. In 2017 approximately 3,800 cases were brought before the Court of Appeals against approximately 4,000 in 2018. The expectation is that the number of tax cases will begin to increase in the coming years due to the changed international tax environment following the BEPS project, the implementation of the EU initiatives against tax avoidance. These developments will likely prompt a more active enforcement by the DTA.
No such data is available.
No such data is available.
The BEPS project and the implementation of the EU regulations countering tax avoidance should give the DTA new options and instruments to tackle tax avoidance and contest the tax positions of taxpayers. Furthermore, tax authorities around the world are increasingly sharing more and more information on taxpayers. Moreover, taxpayers and their intermediaries active in the EU will be subject to a mandatory disclosure obligation in respect of cross-border potentially aggressive tax-planning arrangements based on DAC6, which was adopted on 25 May 2018. In principle the mandatory disclosure rules apply to intermediaries. In certain specific cases, however, the mandatory disclosure rules apply to, or shift to, the relevant taxpayer. This may, for instance, be the case when there is attorney-client privilege or when there is no intermediary involved with respect to the cross-border potentially aggressive tax planning arrangement(s). Tax authorities within the EU share the information received on the basis of the MD Directive.
Developing tax risk-management policies, procedures and processes is something taxpayers should consider in this changing tax environment. Taxpayers need to be proactive to prevent and manage tax disputes and disagreements with the DTA. Taxpayers without a comprehensive and sound approach on detecting potential tax risks and the management thereof are likely to be more vulnerable to scrutiny of the tax authorities.
It is nevertheless inevitable that tax disputes and disagreements with the DTA arise and as a result of this changing global tax environment, taxpayers are likely to be confronted with tax audits and tax disputes with the DTA more frequently. In cases like that, it generally helps if the taxpayer already has a good understanding of the various mechanisms available to the taxpayer to resolve the tax dispute/disagreement and the pros and cons thereof (eg, mediation, litigation).
In addition, it generally helps if based on its past, the taxpayer has an open and good relationship with the DTA. This increases the taxpayer's chances of settling the tax dispute/disagreement in the early stages (if that is something the taxpayer desires).