Tax litigation

Moreover, conducting a tax procedure requires a well-thought-out strategy, especially if the procedure must be conducted in conjunction with a (tax) criminal case.

Tax proceedings

Tax procedural law is complex. The allocation of the burden of proof is of great importance. Who must prove what? How high is the standard of proof? Is there a possibility of reversal and intensification of the burden of proof? Tax litigation is also a matter of strategy and timing. When should a particular argument be raised?

It is important to review the Tax Administration’s file first. For example, this allows you to determine whether the inspector has a “new fact” that would justify issuing an additional assessment for prior years. It can also appear, this happens regularly, that the inspector deliberately withholds certain documents in an attempt to avoid harming the administration’s position. Or documents are introduced into the proceedings at a very late stage. These are procedural incidents that may arise and that call for an adequate response.

When a tax procedure?

Sometimes the inspector departs from the tax return you filed. If you disagree, you may submit a notice of objection, which marks the beginning of a tax procedure. The inspector may also issue an additional assessment for prior years or an additional assessment relating to withholding taxes. Those can also be challenged by objection. If the objection is wholly or partly rejected, the (remaining) dispute can be brought before the tax court. First by appeal to the district court, then by higher appeal to the court of appeal, and subsequently by cassation appeal to the Supreme Court.

It may be a matter of principle, or objection and appeal may be lodged for strategic reasons, for example due to the connection with a (tax) criminal case. In the latter scenario, the correct timing of defenses plays a crucial role.

How long does a tax procedure take?

Fiscal procedures can take a very long time, sometimes many years, especially if a case is litigated all the way to the Supreme Court. And then it is still uncertain whether the Supreme Court will dispose of the case itself. It may also refer the case to a (different) court of appeal. Sometimes a new cassation appeal to the Supreme Court is then required. It is therefore important to have the viability of a litigation path carefully assessed in advance.

What does a lawyer do in tax procedures?

First, the lawyer assesses whether it makes sense to conduct a tax procedure and whether it might be avoided. If litigation proceeds, the lawyer acts as litigation counsel: drafting procedural documents (such as the statement of appeal, the “10-day document,” and the pleading notes), speaking at the hearing, and negotiating with the Tax Administration if needed.

How does the objection procedure work?

A notice of objection must meet several formal requirements. For example, it must be filed within the statutory six-week time limit and it must also be substantiated. If the notice of objection does not meet the legal requirements, it can be declared inadmissible.

After filing a substantiated notice of objection, you have the right to inspect the documents relating to the case. This also applies to documents available digitally at the Tax Administration. Based on the documents provided for inspection, the objection can be further substantiated as necessary. Before the inspector decides on the objection, you have the right to be heard on your objections. By law, the notice of objection must be handled by an inspector other than the inspector who issued the assessment. The objection procedure is intended for a reconsideration.

The inspector ultimately issues a decision. The notice of objection can be declared (partly) well-founded and/or (partly) unfounded. This decision can then be appealed to the district court. A notice of objection can also be declared inadmissible, for instance because it was filed too late. In that event, the court will only assess whether the objection was rightly declared inadmissible. Incidentally, the inspector is obliged to assess even a late objection ex officio. However, that ex officio assessment cannot be challenged before the tax court (there is an exception for personal income tax).

Is a settlement possible during the objection procedure?

It may occur that the parties reach a full or partial settlement during the objection procedure and conclude a settlement agreement. Such a settlement is typically documented in an agreement that is binding on both parties. It is often agreed that upon signing the settlement agreement, the objection will be deemed withdrawn.

How does the appeal procedure at the district court work?

Filing an appeal with the district court must also satisfy formal requirements. After the appeal is filed, the inspector is given the opportunity to respond with a statement of defense. By law, the inspector is required, together with the statement of defense, to submit the documents relating to the case.

It regularly happens that the inspector does not introduce all documents and invokes confidentiality. That is permitted only if there are compelling reasons. The court decides whether such reasons exist.

As a rule, after the statement of appeal and defense are filed, a hearing is held by the court. The parties may file additional documents up to ten days before the hearing. During the hearing, the parties can further explain their positions, and the court may ask questions.

The court then issues a judgment on a later date to be determined. In practice, that date is often postponed to another date, due to the overburdening of the judiciary.

Can a settlement still be concluded during an appeal?

A settlement can also be concluded during an appeal. It is not uncommon for the tax court to suggest that the parties consider a settlement. This should be suggested only if the outcome of the procedure is uncertain for both parties. The parties are not obliged to settle in such a case. If they do, the appeal ends.

How does the tax procedure in higher appeal before the court of appeal work?

Against the district court’s decision, higher appeal can be lodged with the court of appeal, also called the second instance on the facts. Higher appeal has a so-called “second chance” function. New grounds can be raised against the (contested) assessment, provided this is not done too late and the opposing party has enough time to respond. After filing the higher appeal, the opposing party (inspector or taxpayer) has the opportunity to respond with a statement of defense. The court of appeal then rules on the higher appeal.

The cassation procedure before the Supreme Court

The party that cannot agree with the court of appeal’s decision can lodge a cassation appeal with the Dutch Supreme Court. The procedure before the Supreme Court differs fundamentally from the appeal and higher appeal before the courts of fact (district court and court of appeal). The Supreme Court reviews whether the court of fact applied the law correctly, whether the court’s reasoning is sufficiently motivated, and whether that motivation is comprehensible. The decision of the court of fact is the starting point in cassation.

After the written exchange of submissions, the Advocate General at the Supreme Court may issue an opinion. Such an opinion contains an independent recommendation to the Supreme Court. The parties are given the opportunity to respond to the opinion. That response is also called the “Borgers letter.”

The Supreme Court then issues its decision by judgment. Depending on its decision, the Supreme Court may dispose of the case itself or refer it to a court of appeal. It may also dispose of the cassation appeal by applying Article 81 of the Judiciary Organization Act. That occurs when the complaints cannot lead to cassation and do not require answers to legal questions in the interest of legal unity or legal development. For more information, please visit our page on cassation.

Preliminary questions to the Supreme Court

District courts and courts of appeal can ask preliminary questions to the Supreme Court. In that event, the Supreme Court is asked to interpret a rule of law. This happens sporadically. Asking preliminary questions can significantly accelerate the proceedings. It is therefore important to consider this option when determining strategy. The court can be encouraged to submit preliminary questions.

Mass objection

If a large number of objections are filed raising the same issue, the Minister of Finance can select some of them for litigation before the Supreme Court. A well-known example is the box 3 levy. Specifically for box 3, a “mass objection plus” procedure has been introduced. This procedure is intended for anyone who did not file an objection or filed too late and did not receive compensation for the years 2017 through 2020. It is important that taxpayers file their own objections to benefit from the outcome of the mass objection procedure. The question whether the amount of tax interest is proportionate is another well-known example of a mass objection procedure.

Mediation

Tax mediation is a form of alternative dispute resolution. It can be particularly useful where personal relations between the inspector and the taxpayer have broken down. Even outside such cases, mediation is used to try to resolve a dispute relatively quickly and out of court.

Why Hertoghs

The lawyers at Hertoghs have specialized in conducting tax procedures for decades. Everything turns on the best strategy: what is the right moment to raise a particular argument? Should witnesses be heard, and how does that work in a tax procedure? Should the interested party attend the hearing? And how can the Tax Administration’s assertions be challenged as precisely as possible? We have extensive experience with these and other issues, enabling us to guide clients to the best achievable result.