#47: (Mis)trust?

Recently AIJA organized a conference to discuss the experience of lawyers with trusts. The title says it all: “Trusts and Continental law: is this marriage possible?”. The figure of the trust is not treated the same in every jurisdiction, which can cause serious legal clashes. These clashes in practice appear for instance in the form of disputes on the execution of duties by the trustee, issues in the field of succession, disputes on interpretation of duties under CRS, tax planning opportunities and issues, tax disputes and criminal investigations. In the Netherlands the trust stars in many tax disputes which sometimes evolves into a criminal investigation. What do you need to know about the Dutch tax regime?

In the past the tax department has regularly tried to tax Dutch tax payers for the assets which were placed in a trust. These cases developed jurisprudence which basically comes down to the question whether the settlor of a trust could factually use the assets which were placed in the trust  as his own. If the answer is yes, than taxation under income tax laws is possible. If the answer is no, then taxation of those assets it is not possible. In that case only the gift of the settlor to the trust would be taxed. Of course, this was no guarantee that the tax authorities would not start a discussion on the qualification of the assets in the trust.

As of 2010 a new regime was adopted which led to the taxation under income tax laws of so-called “separate private wealth”. The idea is that figures in which private wealth is separated from the wealth of the owner, are deemed to remain part of the property of the owner. In other words, a figure like the trust is transparent under this regime and the settlor will be taxed accordingly. The regime does not come to taxation of the settlor if the separate private wealth was taxed in the country of establishment. According to the Dutch regime this only applies if the taxes that have been paid are reasonable. There are substantial differences between the jurisdictions in which trusts can be established.

The regime also foresees the passing of a settlor. In that situation the assets will be allocated to the heirs of the settlor following the succession laws. If the heirs however can proof the contrary – meaning that that they do not have a legal enforceable right towards the assets in the trust – then they cannot be taxed. If it is not possible to determine the settlor or the heirs, the beneficiary of the trust will be taxed. This regime can lead to the situation that an heir or beneficiary can be taxed under the income tax law, while he did not actually receive anything from the trust.

The settlor and beneficiaries also have an obligation to report their involvement with a figure which is considered ‘separate private wealth’ in their tax returns. Knowingly not reporting this is a criminal act and can even lead to criminal prosecution. Various case studies also show that the source of the funds in the trust could also be a trigger for money laundering suspicions.

With respect to our experiences in tax disputes, mostly beneficiaries end up in difficult positions if a trust is involved. In practice their discussion with the authorities usually boils down to the question whether or not they were aware of their involvement in a trust. But how do you proof that you did not know something?

It is safe to say that the involvement of a trust, usually leads to mistrust of the authorities in the Netherlands. One of the key-take-aways from the conference is therefor that anyone who is confronted with a trust should ask for advise on all involved local jurisdictions. Even though the settlor of a trust might have determined loved ones as a beneficiary of the assets with nothing but good intentions, this does not guarantee a discussion free life for the beneficiary.

Do you have any questions about this subject, are you confronted with a related issue and would you like to discuss this with us? Please feel free to contact us via boezelman@hertoghsadvocaten.nl and boer@hertoghsadvocaten.nl.

#46: To prosecute or to confiscate

Confiscation of the proceeds of crime may take place in accordance with article 36e of the Dutch Criminal Code (CC). This article makes it possible to confiscate proceeds of crime in cases where there has been a conviction. In addition, in accordance with article 36e, subsection 3, CC it is possible, to confiscate proceeds and assets that are obtained by means of other criminal offences if there has been a conviction for a crime committed by the suspect. For these ‘other criminal offences’ a conviction is not necessary but the burden of proof is on the prosecutor to provide sufficient indications that these other criminal offences have been committed and that the suspect has obtained proceeds by committing these offences. In two recent cases we see that the legal protection in a confiscation procedure of proceeds by means of ‘other criminal offences’ is far less then in case of a regular situation.

In a judgment of the Court of Appeal of 10 October 2019 on the confiscation measure, the following situation was at hand. The suspect was convicted of money laundering for having an amount of € 216,904.28 cash at hand while she knew that the money derived entirely or partially from a crime. The Court of Appeal ruled that the mere possession of money does not necessarily qualify as an actually unlawfully obtained advantage. In this case, the Court of Appeal therefor investigated to what extent the money was beneficial to the convict. The Court concluded from the case file that invoices were paid with this money and cash deposits were made. On this basis, the Court of Appeal ruled that the money is an unlawfully obtained benefit because the convict had spent the money and the money was thus beneficial to the convict. On these grounds the court rules that the confiscation measure should be set at € 216,904.28.

In another judgment of the Court of Appeal, also dated 10 October 2019, the Court used a different approach. In this case, the suspect was convicted of money laundering on the basis of having a Rolex and a sum of € 3.615 in cash, knowing that these items originated from a crime. However, the confiscation case relates to an ‘other criminal offence’. The convict was also arrested at the airport with € 180.000 in cash. The convict was not prosecuted for this fact, it only played a role in the confiscation case. The public prosecutor considered this fact to be “another offence” as referred to in Article 36e, paragraph 3, CC. The Court of Appeal stated that in case of “another offence” there need to be sufficient indications that the offence has been committed. However, the Court does not have to determine whether the person is co-perpetrator or perpetrator. Furthermore, it is not necessary to assess whether the convicted person has obtained an advantage through or from the benefits of the money laundering committed by him, but only whether criminal offenses have led to the acquiring of an advantage by the convicted person. The Court rules that the convicted person has not argued nor has it become plausible that he fully or partially held the cash amounts for someone else. For that reason it must be assumed that the convicted person kept the amount of money (exclusively) for himself. The Court rules that the amount of € 180.000 shall be confiscated.

From these examples it derives that it matters whether you are convicted for money laundering or money laundering is qualified as ‘another offence’. In the first situation the Court has to examine whether the convict has benefited from the money. While in the other situation the Court merely examines whether the money derives from a crime. It is then up to the convict to state and motivate that the money was not his. In our opinion these examples show that a confiscation measure based on article 36e, subsection 3, CC does not provide enough legal protection as the public prosecutor has a much lower burden of proof. It therefor creates a wrong incentive for the public prosecutor as it might be more successful to not prosecute someone for some criminal offences but merely start a confiscation claim.

Do you have any questions about this subject, are you confronted with a related issue and would you like to discuss this with us? Please feel free to contact us via boezelman@hertoghsadvocaten.nl and boer@hertoghsadvocaten.nl.

#45: The wind has changed

Until a few years ago, criminal prosecution of tax offences in the Caribbean parts of our Kingdom was not very common. In recent years, the Public Prosecution Service of Curaçao has made its presence in the tax domain and is prosecuting tax offences. In some cases more successful than others. Nevertheless, it is clear that the Public Prosecution Service of Curaçao is wide awake. Very recently, agreements between the Public Prosecutor’s Office of Curaçao and the Tax Authorities of Curaçao were published. These Notification, Transaction and Prosecution Guidelines (ATV-guidelines) lay down which tax cases are eligible for criminal prosecution and which cases will be dealt with administratively. From our experience at Hertoghs Dutch Caribbean we learn that the wind has changed. What can we expect?

It is clear that tax fraud has been underexposed on Curaçao and this also applies to other Caribbean parts of the Kingdom of the Netherlands. The Curaçao Court of First Instance acknowledges this in so many words in earlier judgments. The Court seems to blame this on the tax morale on the island, or rather: the lack of it. On the other hand, Curaçao citizens  blame the Tax Inspectorate for acting arbitrarily against taxpayers, as the tax burden is not evenly distributed. The fact that the tax morale on the island is “underdeveloped” could then be considered a logical consequence. In our opinion, this factor plays a role in the defense in tax proceedings and in tax related criminal proceedings. After all, the principle of trust regarding how things were established in the past is applicable.

However, this does not change the fact that anyone can be pulled into a discussion with the tax authorities or the prosecution service related to not complying with tax law obligations. Especially now that the Public Prosecutor’s Office and the Tax Inspectorate are preparing themselves with the ATV guidelines in order to fight tax abuses. These guidelines are a publication of the agreements made between the Public Prosecution Service, Customs, the Tax Inspectorate, the Tax Affairs Sector (SFZ) and “Stichting Belastingaccountantsbureau” (SBAB). The guidelines describe 1) which cases must be reported, 2) on the basis of which information the cases are selected and 3) which cases are dealt with under criminal law and which cases are dealt with under administrative procedures. In the blog of our colleagues these agreements and the way in which the defense can benefit from them are further explained.

The guidelines suggest that, in addition to the Public Prosecution Service, the Tax Inspectorate will also play an active role in tackling tax fraud. The question is whether this is a realistic target. Only last year, the Tax Inspectorate and the Tax Collector stated in the press that there has been a huge backlog in sending out tax assessments and that the Tax Collector is also forced to leave money ‘on the streets’. The lack of capacity is therefore a problem. At the time, they also announced that they were no longer waiting for the ongoing projects to reorganize the Inspectorate, but that they were setting up the reorganization themselves. It will have to become clear whether the budget problems can be overcome in order to make up for lost time by hiring sufficient personnel.

In the meantime, the Public Prosecutor’s Office might not want to wait for this to be sorted and take matters into its own hands…

Do you have any questions about this subject, are you confronted with a related issue and would you like to discuss this with us? Please feel free to contact us via boezelman@hertoghsadvocaten.nl and boer@hertoghsadvocaten.nl.

#44: What is the value of a confession?

It is completely up to a Court to decide upon a punishment when a suspect is found guilty of a crime. The Courts are only bound by the maximum penalties as stated in the law. In fraud cases it hardly ever happens that the maximum sentence is ordered. It is quite an arbitrary process in which (the) judge(s) ha(s)(ve) to weigh all the facts and circumstances of the case to come to a reasonable punishment. A difficult question to answer in this respect is: What will the suspect get in return for a confession?

The LOVS guidelines, which have been drawn up by the Courts of Appeal, provide guidance for the courts to determine which penalty should be imposed in a specific case. However, in the end every punishment is ultimately tailor-made. After all, the LOVS guidelines also state that aggravating and mitigating circumstances must be taken into account. But how these circumstances should be weighed and what effect these circumstances have on the punishment remains mystical. This applies in particular to the question on whether cooperation of the suspect in the investigation yields in terms of punishment. To this question, lawyers often are unable to give an answer. The Court of Appeal in The Hague recently made clear what the effect of cooperating on a punishment can be and – we believe it is fair to say – should be.

The case concerns a suspect who is convicted by the regional court for forgery of documents. He had submitted false declarations for an expensive drug for a period of two years, while in reality that drug had not been provided at all. However, the reimbursements for it had been collected by the suspect. The sentence he was given for this was a prison sentence of 18 months, 6 of which were conditional. The suspect appealed against this sentence. For most part, the Court upholds the statement of evidence, but in particular deals with the penalty.

The Court considers that according to the LOVS guidelines the sentence should be an unconditional prison sentence between 18 and 24 months. Nevertheless, the Court believes that in this case there is no reason to impose an unconditional prison sentence. The Court of Appeal explicitly states the circumstances that reduce the sentence:

1. Immediately after the case has come to light, the suspect fully cooperated with the investigation;

2. He has repaid the amounts wrongly received;

3. During the trial, the suspect has shown that he is aware that he has acted wrongly;

4. The consequences of the criminal case have had an enormous impact on the life and family of the suspect, partly due to media attention;

5. The suspect is a first offender.

In view of these circumstances, the Court of appeal comes to a conditional 12-month prison sentence and a 240-hour community service. Because the Court of appeal explicitly provides insight into what the mitigating circumstances are and what they result in, lawyers can now provide better advice to their clients on the (positive) effects of cooperating with the investigation.

We welcome the result of this judgement. After all, an unconditional prison sentence comes with a great amount of damage for the suspect and certainly also for relatives and loved ones. In such a situation we find this disproportional, as does the Court of appeal. A second chance can be deserved by cooperating. We therefore hope that other courts will take an example of this judgement.

Do you have any questions about this subject, are you confronted with a related issue and would you like to discuss this with us? Please feel free to contact us via boezelman@hertoghsadvocaten.nl and boer@hertoghsadvocaten.nl.

#43: The fading and fallible memory

In many criminal investigations under the Dutch continental law system, the investigation à décharge on behalf of the defense is a challenge. Due to the inquisitorial system it is not a given that the defense can interview any and all witnesses. The defense has to convince the (investigating) judge on the interest of interviewing certain witnesses. Especially requests that are made during the investigation of the police or FIOD (financial intelligence unit) are hard to realize. Even though interviews à décharge can be of crucial importance in this early stage. The Court of Appeal in Amsterdam now acknowledges that interviewing witnesses in a later stage has influence on the memory of the witness. Therefore it also has an influence on the reliability of the evidence, which is one of the arguments for granting permission to interview witnesses on the request of the defense in an early stage.

In a recently published decision the Court of Appeal had to decide on a case regarding taxi rides without running a taximeter. The defense was first granted to interview a witness in the appeal phase. The defense argued that the right to interview witnesses in the sense of article 6 ECHR was breached. The reason was that the witness was interviewed 4 (!) years after the alleged criminal act was committed. Because of the passing of time the witness could remember the incident only on headlines.

The Court of Appeal however decided that in this particular situation article 6 ECHR was not breached. At first the suspect was offered to accept his punishment by payment of a fine (the so called “strafbeschikking”). The suspect however did not accept this and appealed to the regional court. Soon after this appeal the suspect received the indictment to appear before the court. Before the indictment was received, the defense had the possibility to ask the investigating judge to interview witnesses, this momentum was however not used. The criteria to decide upon such a request is whether there is an interest for the defense. Now the request was first made during the hearing at the regional court. At that moment the criteria is whether the request to interview the witness is necessary for the defense. This request was then denied.

The Court also states that if the witness would have been interviewed at the regional court, this would not necessarily have led to a more detailed witness interview, as at that time also a lot of time – 2,5 years – had already passed since the incident.

In our opinion the argument that the passing of time influences the ability of witnesses to give a useful interview in criminal investigations, should be taken more seriously. If the defense requests to interview witnesses during the investigation phase, these requests should be granted. With the passing of time it will become more and more difficult for the witness to remember certain matters, perhaps important details, which are relevant for the case. Even though this situation did not cause a breach of article 6 ECHR in this specific situation, this does not mean that this witness could have provided important information for the case if he would have been interviewed earlier. After all, the importance to interview this witness in the appeal case was acknowledged.

This case not only shows that the defense should make their interest to interview certain witnesses early in the investigation, it also shows that these requests should be taken more seriously to be able to establish all the relevant facts and find the truth.

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.

#42: The right to a trial within a reasonable period

Article 6 of the ECHR gives a suspect the right to a public hearing before an independent and impartial court within a reasonable period of time. Our experience is however that (financial) criminal investigations take a very long time. The workload of the Financial Intelligence office is too high. Also the workload of the Courts prevents the prosecution of all criminal cases. The question is: what can a do suspect against such delays? Can a suspect enforce the right to a trial within a reasonable time?

What a reasonable period is depends on the circumstances of the case. It depends on i) the complexity of the case; ii) the influence of the suspect or his counsel on the proceedings and iii) the way in which the case was handled by the competent authorities. According to the jurisprudence of the Dutch Supreme Court, an exceedance of a reasonable period is usually compensated by a reduction in sentences. Exceeding the reasonable period does not lead to inadmissibility of the public prosecutor, not even in exceptional cases.

But what if no prosecution takes place and the public prosecutor does not bring the case to trial? In the Netherlands it is possible to submit a request to terminate the case on the basis of Article 36 of the Code of Criminal Procedure. The question is however, whether the prosecution can be deprived of its right to prosecute due to a violation of the reasonable period on the basis of Article 36 of the Criminal Code. Courts seem to answer this question in various ways. However, such Court decisions cannot be appealed to the Supreme Court.

For this reason an advocate general of the Supreme Court, who provides independent advice to the Supreme Court, has submitted this legal question to the Supreme Court in a cassation procedure which is initiated in the interest of the law. One of the questions is whether an infringement on the right to a fair trial within a reasonable period can be a criterion in the application of Article 36 of the Dutch Criminal Code. Especially taking into account the jurisprudence of the Supreme Court which states that exceeding the reasonable period can never constitute a ground for declaring the prosecutor inadmissible in his prosecution.

The advocate general comes to the conclusion that sanctioning an unreasonable delay in the investigation and prosecution cannot lead to and end of the case, since this would be contrary to the aforementioned case law of the Supreme Court. However the advocate general provides another route to speed up the procedure. According to him the appropriate route to prevent an unnecessarily long investigation or the absence of a prosecution is the following:

At the request of the suspect, the examining magistrate can, on the basis of Article 180 (3) of the Criminal Code, commission a public prosecutor to end the investigation an prosecute the case if the investigation takes too long. However if the public prosecutor ignores this term the law does not provide for an explicit sanction. That is why, according to the advocate general, Article 36 DCC can serve as a safeguard. In that omission, the examining magistrate can find reason to submit the case to the court, who can then declare that the case has ended. In that case, that statement is not a sanction for exceeding the reasonable period as such, but for exceeding the set term by the examining magistrate. According to the advocate general, this is then compatible with the case law of the Supreme Court regarding the reasonable period.

In our opinion, this step-by-step plan is somewhat artificial. Why does the public prosecutor still have a last chance after an unreasonably long deadline? Is an infringement of the set term of the examining magistrate more serious than a violation of the human rights of the suspect on the basis of Article 6 ECHR? We believe that it is up to the prosecutor to consider and protect the fundamental rights of Article 6 ECHR. If a public prosecutor does not prosecute a case for an unreasonable period of time, apparently it is not that important. And can it still be possible to find truth even so many years afterwards? We believe that Article 36 CC should have an important function in protecting Article 6 ECHR in the event of an inactive or slow investigation. Maybe the Supreme Court in its decision provides the tools to protect the rights of a fair trial of a suspect.

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.

#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.READ MORE

#40: Dutch money laundering articles are being misused

In Lawlunch #21  we brought to the attention that we are noticing a shift in the perception of the presumption of innocence. The presumption of innocence dictates that the burden of proof lays with the prosecuting authority. This also entails that in principle the right to remain silent cannot be used against you. However, In Dutch case law we see a development – especially in relation to money laundering – that remaining silent can be held against you. We fear that this development results in the lost of meaning of the presumption of innocence. Also, it results in a preference of the use of the Netherlands as a jurisdiction to prosecute international money laundering cases. The idea is that a suspect has to prove the legality of the source of the money. The thresholds from Dutch jurisprudence however is another one.READ MORE

#39: Blinded by the cause

From the previous Lawlunches it becomes clear that the fight against (tax) fraud is fierce. “Facilitators”, such as tax advisors and financial institutions, are targeted by the various government institutions as described in Lawlunch #33. In Lawlunch #37 we concluded from the annual report of the FIOD (the Dutch tax intelligence and investigative unit) that this fight against fraud by going after facilitators will continue. We also concluded that this annual report lacks a very important topic: the rights of the accused.


#38: To proof or not to proof

Criminal judges are given a difficult task. They need to reconstruct what happened and decide whether they are convinced somebody committed a criminal offence. The Dutch system of proof gives a judge a free hand when taking this decision: he is free in the valuation of the evidence and needs to be convinced that the crime was committed by the suspect to come to a conviction. This freedom of a judge is just limited by the rules regarding the minimum of proof. The unus testis nullus testis-rule is one of the basic principles in this regard. However, this rule does not apply to police officers. If a police officer witnesses something and writes this down in an official report, this report has probative value and the unus testis nullus testis-rule does not apply. We wonder of the probative value given to an official report is legitimate and whether a decision of the court could be solely based on an official report. Before we get to that, we will first consider the decision scheme of the Court to know which questions the Court has to answer. Thereafter, we will pay special attention to the probative value of an official report.