Businesses are regularly at loggerheads with the tax authorities over VAT issues. Which VAT rate applies? Do they qualify for input tax relief or a VAT refund? Our firm has a number of specialist VAT and custom law experts. Besides having litigation experience, they are also highly knowledgeable in the field of substantive VAT law.
We believe that, to conduct VAT proceedings, domain expertise on VAT is a must. The fact that VAT is an EU tax makes things even more complex than they already are. What VAT-related services can we help you with?
Support in tax audit
Taxable persons are responsible for their own VAT filings. They decide when and how much VAT is remitted. The tax authorities perform audits, either further to a taxable person’s failure to file a tax return or because they have been tipped off or have uncovered information in a third-party investigation.
We can help you navigate the tax audit process by assisting you openly or behind the scenes, whatever suits you best. A tax audit can potentially result in considerable adjustments in the form of additional tax assessments, possibly accompanied by a fine. We will do all we can to stop the tax authorities from raising additional tax assessments or to have them at least mitigate your tax assessments.
Apart from providing support in VAT proceedings, we can also litigate VAT cases for you, whether they involve your tax liability or the collection of tax, including granting of payment deferral. Just like in payroll matters, the tax authorities (‘the collector’) may decide to make a business owner or executive director liable in their private capacity for VAT or excise duty obligations. We can help you develop a successful defence strategy. To read more about our tax litigation services, please click tax litigation).
VAT proceedings: rate disputes
In the Netherlands, the supply of most goods and services is subject to the standard VAT rate (link to page in Dutch) of 21%. That said, the supply of specific goods and services is tax-exempt (e.g. medical care services by recognised medical professionals), zero-rated (e.g. solar panels) or subject to a reduced rate of 9% (e.g. food).
If a taxable person challenges the application of a particular rate or their VAT rights, they can take action before an additional tax assessment is imposed by submitting an objection to the self-assessed VAT payment.
The deadline for submitting this objection is six weeks after the VAT has been paid. If the objection is submitted after this deadline, the tax inspector will qualify the objection as an ex-officio refund request. The request can be submitted for up to five years after the end of the calendar year in which the tax debt originated or to which the refund relates.
The tax inspector’s decision on the request is not open to appeal. In other words, a taxable person’s legal protection becomes highly limited as early as just six weeks after the self-assessed payment.
Are you involved in a dispute with the tax authorities about your VAT return or an additional tax assessment that has been, or is about to be, imposed? We know better than anyone what your rights are in VAT proceedings. We litigate VAT cases for individual taxable persons as well class action suits to challenge the tax authorities on how they apply exemptions and reduced rates.
Under conditions, intra-Community supplies of goods are subject to tax at the zero rate, i.e. exemption with refund of input tax. The question of whether or not the conditions for being taxable at the zero rate have been met turns out to be a frequent source of contention with the tax authorities. The resulting disputes can lead to an additional VAT assessment being imposed, possibly accompanied by a fine.
By way of the VAT Directive, VAT is the only common harmonised tax in the EU. As a result, the legislation of the individual Member States is required to comply with this EU directive and the Court of Justice of the European Union (CJEU) is mostly responsible for ruling on disputes regarding its application. The European context is particularly prevalent when it comes to the fight against VAT fraud, which is a priority for the European Commission. Since VAT fraud is being addressed more and more consistently, Member States have greater freedom to refuse the right to zero rate, the right to a refund or the right to tax relief.
Fraud comes in many shapes and sizes, for instance in the form of inflated bills and prices, intentional non-compliance with formal obligations, such as failure to keep accounts or keeping incomplete or incorrect accounts, failure to enter invoices in accounting records, non-payment of VAT or failure to file VAT returns. To read more about our tax fraud expertise tax fraud).
One of the most common types of fraud is VAT carousel fraud, also known as missing trader fraud, which always involves at least three parties. This is how it works. A trader from one Member State will typically supply goods to a company in another Member State at the zero rate. This second company is the fraudster because it will collect VAT on the resale of the goods without remitting the VAT it collected from its customers to the tax authorities. It does not pay any VAT whatsoever. The customer, for its part, will go on to recover the VAT it paid on the supply of the goods. This type of VAT fraud is taking a heavy toll on the European coffers.
Since the fraudster tends to disappear (hence the term ‘missing trader’), the tax authorities or the Public Prosecution Service will target the original supplier and/or the second customer. They will use the CJEU’s criterion that, if this supplier ‘knew or should have known’ that its customer (i.e. the missing trader) was involved in fraud, by the transaction concerned, the supplier itself was in fact participating in VAT evasion. Member States can then refuse to grant that supplier their VAT rights. Fines are typically imposed as well because the supplier ‘should have known better’. Criminal prosecution may also be considered.
VAT proceedings: bypassing due process?
What we see a lot is that taxable persons are accused of VAT fraud (link to page in Dutch) without any evidence. In tax (link to page in Dutch) (link to page in Dutch) and criminal proceedings alike, the authorities will be inclined to come up with vague arguments that do not actually substantiate their suspicion of fraud. General aspects, such as a quick change of suppliers and customers, the use of middlemen or delivery of goods to a location other than the customer’s business address, as well as the use of a hotmail address do not add up to fraud without any further proof.
In our opinion, the tax authorities and/or the Public Prosecution Service should conduct a thorough investigation before making serious fraud allegations. That is why a critical eye (link to page in Dutch) is imperative.
Contact our specialists
R. (Roelof) Vos
R.J. (Reinder) de Jong
R. (Ron) Jeronimus
D.C. (Diede) Molenaars
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