Voluntary disclosure proceedings and foreign assets

 The voluntary disclosure scheme

The voluntary disclosure scheme applies to taxpayers who spontaneously and voluntarily file tax returns, in writing and in full, declaring previously non-declared income and assets, or provide full information about such income or assets. In the event of voluntary disclosure within two years, no penalty will be imposed. As for the other years, voluntary disclosure will be regarded as a punishment-reducing circumstance. However, on 1 January 2018 and 1 January 2020, the scheme was considerably restricted.

 Changes since 1 January 2018

Effective 1 January 2018, the voluntary disclosure scheme no longer applies to corrections to Box-3 assets held abroad. This means that the 2-year penalty-free period will lapse and that criminal prosecution will be possible. A transitional scheme having been included, the consequences of voluntarily disclosing Box-3 assets held abroad will remain limited for now. This transitional scheme provides that the voluntary disclosure of foreign Box-3 income will remain possible for tax returns that were or should have been filed prior to 1 January 2018.

 Further restriction of voluntary disclosure scheme effective 1 January 2020

On 1 January 2020, the voluntary disclosure scheme was further curtailed. Voluntary disclosure is now also no longer possible for Box-2 income and domestic Box-3 income. This means that voluntary disclosure is still possible for Box-1 income only, and for gift tax and inheritance duties, for example. It’s remarkable that no transitional law has been provided in relation to the change effective 1 January 2020. As a consequence, criminal prosecution is possible to the extent that voluntary corrections to a tax return pertain to Box-2 income, domestic Box-3 income and foreign Box-3 income (effective 2018). The absence of transitional law can be criticised in several ways, first and foremost because such absence is inconsistent with the transitional law provided in relation to the curtailing of the voluntary disclosure scheme in 2018. In addition, it may be argued that the absence of transitional law is contrary to the principle of legality and causes a non-level playing field, because, in relation to foreign Box-3 assets, voluntary disclosure {[i]}is{/[i]} possible for income tax returns pertaining to the years before 2017.

 Principles underlying penalty mitigation

Although the voluntary disclosure scheme has been considerably restricted, voluntary disclosure remains a punishment-reducing circumstance in all cases, which is considered when determining the penalty and deciding whether criminal law will be applied. The penalty's statutory maximum percentage is 300% for undisclosed Box-3 income and 100% for undisclosed Box-2 income. The penalty is levied with respect to the income tax assessed additionally.

However, the tax authorities have formulated general principles in relation to the amount of the penalty, which apply to voluntary corrections. It’s important to be aware of the fact that these are general principles. The Tax Inspector has the discretionary power to (further) mitigate or increase the penalty in specific cases.

In principle, the penalty for undisclosed Box-3 income in tax returns filed before 1 January 2018 will be mitigated to 120%. If undisclosed Box-3 income in tax returns filed after 1 January 2018 is voluntarily disclosed, the penalty will, in principle, be mitigated to 135%.

Different percentage rates apply to undisclosed Box-2 income. In principle, voluntary disclosure in relation to tax returns filed before 1 January 2020 will result in mitigation of the penalty to 30%. In the event that a tax return with undisclosed Box-2 income is filed after 1 January 2020, the penalty will, in principle, be mitigated to 45%.

When mitigating the penalties' percentage rates upon voluntary disclosure, the tax authorities appear to apply transitional law of their own, in order to avoid any violations of the principle of legality.

 Cryptocurrencies

Cryptocurrencies, such as Bitcoin, Litecoin, Ripple and Ethereum, are currently the focus of the tax authorities' attention, following next in line after the foreign account in a country with banking secrecy, the foreign structure as is now known from the Panama Paper and the Paradise Papers. Since the tax authorities qualify such cryptocurrencies as ‘Other assets’ in Box 3, the voluntary disclosure scheme also applies to them. More information about cryptocurrencies can be found here.

Receipt of a letter containing questions from the tax authorities Voluntary disclosure is possible only before you know or should suspect that the tax authorities are or will become aware of your earlier incorrect or incomplete tax return concealing income or assets. When a taxpayer is already on the tax authorities' ‘radar’, it’s no longer possible to make voluntary corrections. Over the past years, the tax authorities have received information from foreign tax authorities, informants or transaction processors, or through the media, e.g. on the basis of group applications in respect of Switzerland (UBS/Credit Suisse), the debit and credit cards project, the Panama Papers, the Paradise Papers and information of the IRS regarding American Express card holders. Following the introduction of FATCA and CRS, over 50 countries will also regularly disclose bank data to the Dutch tax authorities.