On September 30, 2011, the Supreme Court rendered judgment in a case concerning the question whether the tax inspector can reduce a provisional assessment by means of an ex officio reduction, or only by imposing a further negative provisional assessment. In the case of a provisional assessment, interest on tax due is reimbursed; in the case of an ex officio reduction, late payment interest is reimbursed. In respect of the provisional corporate income tax assessments for 2005 through 2009, a further negative provisional assessment instead of an ex officio reduction would be to the taxpayers' advantage. For those years, the reimbursement of interest due on tax covers a longer period than the period a reimbursement of late payment interest would cover; the difference may be as much as six months. This issue also applies to personal income tax assessments for 2006 through 2009.
Judgment
The Supreme Court ruled that the tax inspector may choose between imposing an ex officio reduction or a further negative provisional assessment. This choice must take into account the general principles of sound administration, specifically the principle of proportionality. Choosing an ex officio reduction will mean that the taxpayer suffers a loss of interest. According to the Supreme Court, a loss of interest by definition results in a disproportionate disadvantage in relation to the public budgetary interest of the community. The consequence of the freedom of choice is that the tax inspector, when opting for an ex officio reduction, is obligated to reimburse the missed interest on tax due. If he fails to do so, he is obligated to grant a comparable reimbursement at the next opportunity that arises, by limiting the interest on tax due and, if necessary, by reimbursement of such interest. Taxpayers may file an objection against any decision concerning interest on tax due in respect of the tax debt for the year in question, and thereby request compensation for interest missed.
Conclusion
This judgment is the final step in a long list of proceedings in which lower courts rendered similar judgments. The National Ombudsman also advised along a similar line. Of practical importance is, that the Supreme Court has provided an opportunity to bring complaints regarding the missing of interest on tax due in each decision issued on interest on tax due with regard to the year in question. We expect pending cases to be resolved in line with this judgment. It will remain important to check whether the Dutch Revenue proceeds in line with this judgment when imposing assessments for the years through 2009. As of 2010, the period for which interest on tax due is calculated has been shortened. The six-month interest disadvantage described above will then no longer arise. Finally, a completely new system for interest on tax due and late payment interest has been proposed in the Tax Plan 2012, in which this issue no longer plays a role.