Under Section 47 of the Dutch State Taxes Act, the Dutch Tax and Customs Administration has far-reaching powers to instruct taxpayers to provide information and records, and to inspect digital and hard-copy documents. While it typically demands a lot of information spanning many years, it cannot do so without limitation. A court can be asked to deliver a ruling on the lawfulness of a request for information or on the question of whether all the requested information has been provided (Section 52a of the State Taxes Act).
Given that an irrevocable information order can potentially result in a reversal of, or an increase in, the burden of proof, you need to know what your rights and obligations are when you are requested to provide information. We have extensive experience in navigating clients through the information provision process and litigating against information orders. We also represent clients in civil actions, which the tax authorities commonly bring nowadays to demand compliance with an information order.
Until 2011, it was outside a tax court's jurisdiction to rule on the lawfulness of a request for information by the tax authorities; such requests were not open to objection as a result. The introduction of the information order in mid-2011 changed all that. Taxpayers who find a request for information by the tax authorities to be excessive have the option to refuse to comply. If the tax authorities want to attach consequences to this refusal by reversing or increasing the burden of proof, they will first have to issue an information order. Once an information order has been issued, the taxpayer can bring legal proceedings against the order before the tax court, which will rule on the lawfulness of the request or on the question of whether all the requested information has been provided.
The general principles of good governance play a major role in proceedings against an information order. The scope of the requested information cannot be disproportionate to the purpose of the information provision, for instance. The tax court will scrutinise this in great detail. In this context, the court can also be asked to rule on the question of whether or not a request to provide all emails sent and received in a specific period goes against the right to privacy and/or the principle of proportionality. We often see differences of opinion about the information provision requirement when the tax authorities conduct a test of facts and circumstances (tax residency) to determine the domicile status of entities or the residence status of individuals because they tend to make sweeping requests.
Tax litigation after an information order
An information order is irrevocable if the taxpayer does not object to it or if the tax court upholds it. That does not automatically mean that the burden of proof is reversed and increased. The competent tax court can rule, for instance, that the legal effect of it is disproportionate to the minor breach that was committed.
Requirement to file tax returns
The Dutch tax authorities do not always opt to issue an information order if a taxpayer fails to provide all requested information or their records do not meet every single requirement (Section 52 of the State Taxes Act). We have the impression that they are more likely to take the position that the burden of proof should be reversed and increased if the taxpayer has not met the requirement to file a tax return (Sections 25 and 27e of the State Taxes Act). In tax proceedings, it is then up to the tax authorities to prove that this requirement has not been met, i.e. they are expected to demonstrate that the amount of tax due reported in the tax return is lower than the actual amount due in both absolute and relative terms. The tax authorities also have to prove that the taxpayer could not but have been aware of the fact that a substantial amount of tax has not be levied. The burden of proof is an important aspect of the taxpayer's defence. The court may perform an ex officio review of whether the burden of proof should be reversed or increased. Our lawyers are well-versed in this area and know how to prepare for this.
If, in the opinion of the tax authorities, a taxpayer has not met the information provision requirement, they can decide to impose an information order. But they have other options as well. Non-compliance with the information requirement qualifies as an offence (Sections 68 and 69 of the State Taxes Act). The tax authorities can also force a taxpayer to meet the information provision requirement in a civil action (preliminary relief proceedings), in which they will ask the court to impose a penalty for non-compliance. As the tax authorities often resort to this coercive measure, we have built up extensive experience in this field and know how to seek to prevent a public civil action. If it should come to litigation after all, we will go all out for our clients, drawing on our unrivalled knowledge of defence strategies.
Contact our specialists
A.A. (Anke) Feenstra
P.J. (Peter) van Hagen
A.J.C. (Angelique) Perdaems
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