On July 12, 2006, Lower House members Dezentjé Hamming (VVD) and Crone (succeeded by House members Tang and Groot, all PvdA) introduced a private members bill to amend the General Taxes Act (“GTA”). The intention of the bill was to improve the legal protection of taxpayers in respect of tax audits conducted by the Dutch Revenue. The bill was passed by the Upper and Lower Houses and will take effect on July 1, 2011.
The Act
The GTA includes a number of far-reaching obligations regarding the provision of information by a taxpayer to the Dutch Revenue, the provision of information regarding a third party by a group of taxpayers (those persons required by law to keep administrative records) and the obligation to keep administrative and accounting records. The Act provides for a legal procedure for information obligations with regard to the taxpayer’s own tax liability or withholding obligations. The information obligations concerning third parties only provide for reimbursement of expenses.
The Act introduces an information decision that can be appealed. The tax inspector requesting the provision of information can take this decision if the taxpayer refuses to provide the information. Taxpayers can file an objection against, or appeal, this decision. Should the tax inspector fail to take this information decision, then the measure of shifting the burden of proof (the burden of proof rests with the taxpayer, and is made more onerous) cannot be applied if the taxpayer fails to fulfill its information obligation because it regards the request for information as unlawful.
Legal procedure for information obligations
In summary, the procedure provided for in the Act is as follows:
1. the tax inspector requests the taxpayer to provide information and facts or imposes an administrative obligation;
2. the tax inspector can, in case of failure to meet the request or obligation, state this in his information decision, which is open to appeal;
3. the taxpayer can subsequently file an objection against, or appeal, the information decision.
If the tax inspector fails to take an information decision, the burden of proof cannot be shifted at a later stage because the taxpayer failed to fulfill its information obligations.
If a court rules that the request for information was legitimate, the taxpayer is given an extension to fulfill its obligations. The burden of proof is not shifted if the taxpayer provides the information within that extended period. The court does not have to give an extension where an apparent unreasonable use of procedural tax law has taken place. If the court rules that the request for information was unlawful, then the taxpayer has no obligation to fulfill the request.
Reimbursement of expenses
In addition to the procedure described above, the taxpayer can, in two situations, request a reimbursement of expenses. If a taxpayer fulfills an administrative obligation based on Section 52 GTA, but later decides that the administrative obligation was unlawful, then it can request a reimbursement of expenses. Secondly, those persons required by law to keep administrative records can request a reimbursement of expenses if the obligation to provide information regarding a third party has been met, but this obligation is later considered to be unlawful.
Conclusion
This Act substantially improves the legal position of taxpayers. It primarily removes the threat of the measure of shifting the burden of proof when the obligation to provide information is not met, because the taxpayer does not agree with the tax inspector’s request. The tax inspector decides whether or not to issue an information decision that is open to appeal. If he decides not to do this, he risks the information not being provided; however, the auditing procedure will not be delayed. After July 1, 2011, taxpayers with good arguments supporting their refusal to provide information and facts can present these arguments to a court. Even if a court eventually rules against the taxpayer, this does not automatically mean a reversal of the burden of proof, as is the case at present. The court will allow the taxpayer a reasonable extension to fulfill the obligations.