#41: Tax: a dream, or a nightmare?

On 23 and 24 May 2019 we attended the Half Year Conference of the International Association of Young Lawyers (AIJA) in Hong Kong. One of the tax sessions was devoted to the changing landscape of professional liability of tax advisors across the world. We concluded that the transition of this landscape is in full force. The title of the conference “Tax: a dream, not a nightmare” therefore seems to be too soothing on this particular matter. The actions taken by the tax authorities and the prosecutions services against tax advisors are becoming harsher.

In the Netherlands the fight against (tax) fraud is still high on the agenda of the authorities. As elaborated upon in Lawlunch #37, the Dutch Tax Intelligence and Investigative Service (FIOD) in their (first) annual report that there is a “silent revolution in the financial investigation”. The report states that the silent revolution is more and more visible, because of 1) the focus on facilitators and creators of the financial fraud, 2) using modern technology and 3) the improved international cooperation. The fight against facilitators (of fraud) has been there over the past years and it will remain on the agenda of the FIOD in 2019. Financial service providers, such as banks, are priority of the FIOD. According to the FIOD financial service providers play a vital role in fighting fraud and these service providers should act as the gate-keepers in that fight. Looking at the settlement of ING Bank this harsh approach has its effect.

Also tax advisors are being force-fed into the role of gate-keepers in the fight against fraud. Next to the FIOD, also the tax department has its own tools in this process. As explained in Lawlunch #6 The General Law on Government Taxes (GLGT) provides the legal basis to impose a penalty to a tax payer who intentionally does not file an accurate tax return or does not file such a return at all (article 67d GLGT). Articles 67e and 67f of the GLGT provide a legal basis to penalize tax returns that were determined to a wrong amount or taxes were not paid, provided this is due to intent or gross neglect. These provisions aim to penalize the tax payer. Since 1 July 2009, the General Administrative Law provides a legal basis to also penalize the co-perpetrator or the accomplice. This is also the basis for tax related penalties. Such a penalty can be imposed on an individual, but also on a legal entity. The penalty can be up to a maximum of 100% of the unpaid taxes. Also it seems that a law will pass which constitutes the possibility to publish the penalty imposed. “Naming and shaming” in full force. This penalty can therefore be as much of a nightmare as criminal prosecution.

Since 1 January 2014, a special provision in the GLGT was created to penalize persons involved with a tax offence and qualify as aider and abettor, inciter or solicitor to tax fraud. This provision integrates the more classic participating forms as we are familiar with in criminal law into administrative sanctions law. This provision is established for the more ‘milder’ forms of penal liability for tax advisors to fraud committed by tax payers. This provision was to be evaluated after five years. Earlier this year the evaluation showed that no penalty was imposed yet based on this provision. While you would expect that the provision has then proven its lack of relevance and should be taken out of the law, it was decided to prolong this provision. Is this a sign that it will be used in the coming years?

The most important thing however is that these penalties can only be imposed if fraud is committed. Of course the tax department should show that it is likely that the tax advisor breached a tax provision and that a tax disadvantage was caused. Only if this was done with (conditional) intent and if this was done so closely working together with the tax payer this can be penalized. This means that mistakes are still allowed to be made and cannot form a basis to conclude that tax fraud was committed. Therefor it is very important to do thorough research into the relevant facts, instead of stepping into the “trap” of the assumption that if a tax provision is breached it must have been done intentionally. Especially with the complexity of tax provisions and the open norms that are being used in our laws, it is important to restraint from imposing penalties too easily.

If you have any questions about this subject or if are you confronted with a related issue please feel free to contact us via boezelman@hertoghsadvocaten.nl and boer@hertoghsadvocaten.nl.