Tax fraud

Whether tax fraud has actually been committed (or better: can be proven) is often a matter of interpretation of complex tax rules. Specialized assistance is essential. You will be dealing with specialized opponents, such as the FIOD and the Fiscal Intelligence and Investigation Service of the Public Prosecution Service (Functioneel Parket). Tax fraud is a complex area of law, full of pitfalls and traps.

Your adviser or accountant can also become involved in a tax fraud investigation. Sometimes the adviser is even suspected of tax fraud. In this context, the Public Prosecution Service refers to “facilitators” and actively targets them.

What exactly is tax fraud?

The law criminalizes the intentional filing of an incorrect or incomplete tax return (Article 69 AWR). This is also referred to as tax fraud. Intentionally providing incorrect or incomplete information is likewise criminalized (Articles 68 and 69 AWR). This may arise, for example, when answering an information request from the inspector or during a tax audit.

VAT carousel fraud

VAT carousel fraud is a form of tax fraud. At its core, VAT carousel fraud involves claiming input VAT as a deduction while failing to pay (remit) VAT. In practice, multiple links in the (international) supply chain are involved in VAT carousel fraud.

What is an incorrect or incomplete tax return?

Broadly speaking, two types of inaccuracies or omissions in tax returns can be distinguished. Factual inaccuracies, such as failing to report the balance of a (foreign) bank account (the so-called "hidden saver”), and inaccuracies that relate to the interpretation of (complex) tax law, or a combination of both.

What is intent in tax fraud?

Intent is the deliberate filing of an incorrect tax return. This means you must have been aware of the incorrectness of a return. An unconscious mistake or error does not constitute intent. For proving intent, mere awareness of the incorrectness of a return is not sufficient. You must also have intended to file the return incorrectly. It is therefore a matter of both knowledge and will.

In tax fraud, the intent must be directed at filing an incorrect return. The proof of that intent must be based on facts and circumstances that existed at the time the return was filed. Later facts and circumstances are, in principle, irrelevant.

What is conditional intent in tax fraud?

Conditional intent is the conscious acceptance of a substantial risk that an incorrect return will be filed. Even with conditional intent, both knowing and willing (consisting of accepting the substantial risk of incorrectness) must be proven. Acceptance is understood to mean that the risk of incorrectness is taken for granted. This is the case, for example, when it effectively does not matter to someone that the return filed is incorrect.

Defensible position? Then no intent.

Intent (and thus tax fraud) should not be assumed if a defensible position exists, even if the return is later found to be incorrect by a court.

What is a defensible position?

It must concern a defensible interpretation of tax law. According to the Supreme Court, that exists when the position concerns the interpretation of tax law, i.e., a legal position. A defensible position cannot therefore relate to establishing the facts, including a court’s assessment of the evidence. However, a defensible position may relate to the legal characterization of facts.

When is a position defensible?

There must be arguments of such quality for the position that intent cannot be said to exist. The arguments must thus meet a certain standard. For example, a position should be based on authoritative literature.

A position is, in any event, defensible if a court in tax proceedings has found it correct on legal grounds. Even if that position is later (for example, on appeal or in cassation) found to be incorrect, it remains defensible. A position is also defensible if it is endorsed by an Advocate General or if the position has led to the submission of preliminary questions.

The defensibility of a position must be determined according to objective standards. The knowledge and will of the accused are, to that extent, irrelevant. A defensible position can also be adopted or substantiated retrospectively, that is, after the return has been filed. This follows from the objective nature of the doctrine of the defensible position. Thus, the defensibility of a position can also be invoked later in the course of the criminal case, for example after the FIOD’s investigation. It does not have to be the case that the taxpayer already had the position in mind when filing the return.

Can a tax adviser’s intent be attributed to you?

Intent on the part of, for example, an adviser cannot be imputed to the taxpayer. This does not alter the fact that the taxpayer themselves may also be blamed for intent. That intent must be based on the taxpayer’s own knowledge and will. So, independent of the adviser’s intent.

May you rely on your adviser?

If you have a (qualified) tax adviser file the return, this does not automatically mean you are in the clear. Requirements are imposed on the taxpayer in this regard. You must exercise sufficient care in selecting and cooperating with your adviser. You cannot simply hide behind an adviser. What constitutes sufficient care will differ from case to case. This depends, among other things, on the complexity of the tax regulations at issue in a return.

Distinction between intent and (gross) negligence

If a person did not intend to file an incorrect return, there can be no (conditional) intent. This is the case, for example, if you are counting on a favorable outcome. You then do not accept the risk of incorrectness. The volitional component (of knowing and willing) is absent. Even if the FIOD argues that you could or should have known that the return was incorrect, there is no intent. There may, however, be (gross) negligence, which is not intent (fraud).

Tax avoidance and tax evasion

Tax evasion is a term for committing tax fraud (intentionally filing an incorrect return). In tax avoidance, however, there is no intent directed at filing an incorrect return. The intent is not to violate tax law.

The tax avoider seeks to act within the bounds of the law. In doing so, they may well exploit loopholes in that law. That is not in itself criminal (perhaps undesirable, but that is a different matter).

Tax fraud is a status offense

Only the taxpayer can commit tax fraud. It is a so-called status offense. The person must have the status of taxpayer. A tax adviser or accountant cannot, therefore, be prosecuted as the principal offender of tax fraud, even if they filed the return on behalf of the taxpayer. Advisers can, however, be designated as participants in tax fraud. Forms of participation include co-perpetration, indirect perpetration, and incitement. Aiding and abetting and de facto leadership can also lead to criminal liability. In addition, the Public Prosecution Service has the option to prosecute tax fraud as forgery. In that case, the return is treated as a false document. The principal offender then does not need to have the status of taxpayer. Forgery of documents involves falsifying or fraudulently producing a document intended to serve as evidence, for the purpose of using it as genuine and unaltered.

Una via

If, for a particular act, the inspector of the Tax and Customs Administration has imposed a tax penalty for a violation, that person cannot be criminally prosecuted for that act. The law requires a choice to be made. Either a tax (administrative) penalty, or criminal prosecution by the public prosecutor. It must concern the same act. Filing, for example, an incorrect personal income tax return is not the same as filing an incorrect VAT or corporate income tax return, even though the figures underlying these returns may be the same. Nevertheless, it cannot be ruled out that, under certain circumstances, it will still be judged to be the same facts, even if different returns are involved.

Voluntary disclosure

A taxpayer who subsequently files a correct return, also known as “voluntary disclosure,” can no longer be criminally prosecuted for that conduct. This must occur before the relevant (legal) person knows or could reasonably suspect that the FIOD is onto them, or will be onto them. The statutory voluntary disclosure provision has been significantly curtailed in recent years and no longer applies to income from a substantial interest (box 2) or income from savings and investments (box 3).

Tax fraud and confiscation of proceeds

In criminal law, unlawfully obtained advantages can be confiscated. This concerns benefits derived from the commission of criminal offenses and any subsequent profits.

However, confiscation of proceeds does not apply to purely fiscal offenses. In such cases, the State (i.e., the Tax and Customs Administration) has its own tools to reverse the advantage enjoyed. The Tax and Customs Administration can, after all, proceed to levy the tax due. It should be noted that the exclusion of confiscation applies only to purely fiscal offenses and not to offenses that may be related to the fiscal sphere, such as money laundering (with tax fraud as the predicate offense) and forgery. Exceptions are also conceivable here.

Penalties for tax fraud

The penalty for proven tax fraud can be severe. The legislature has criminalized tax fraud as a crime. It is punishable by lengthy prison sentences. The court may also impose community service orders and fines. In imposing a sentence, the criminal court takes into account the sentencing guidelines (LOVS). In cases of tax fraud, these guidelines largely link the severity of the penalty to the financial loss to the fisc from the established fraud. None of this detracts from the fact that, in determining the ultimate sentence, the court considers all the circumstances of the case, such as the defendant’s financial capacity.

Why Hertoghs

Suspected of tax fraud? Conducting the defense in tax crime cases has traditionally been a core activity of Hertoghs. We handle both the criminal tax case and the (adjacent) tax proceedings against the Tax and Customs Administration under one roof. This yields important strategic advantages and is also efficient.

Hertoghs has handled tax crime cases for many decades and was the first Dutch firm to specialize in this specific area of law. Our lawyers have expertise in both criminal law and tax (procedural) law, which distinguishes them from most other criminal defense lawyers. The strategy in the (tax) criminal case is optimally aligned with that in the (adjacent) tax proceedings.