Bad faith action may justifiably trigger additional tax assessment

The Tax and Customs Administration may levy an additional tax assessment in the event of a new fact coming to its attention or, alternatively, in that of it establishing bad faith action on the part of the tax payer in question where the latter at an earlier juncture had wilfully withheld certain statistics or details from the Inspector of Taxes or had wilfully provided erroneous statistics or details, in the knowledge at the time of the tax return being filed that the Tax and Customs Administration’s adherence to said tax return would result in the assessment ending up understated.

In the event that the tax payer amends or supplements a tax return having been filed at an earlier juncture, it will be up to the Inspector of Taxes to decide – on the basis inter alia of the amended or supplemented return – whether or not there the tax payer in question could be said to have acted in bad faith. The Supreme Court of the Netherlands recently confirmed that this will be no different in cases involving the Inspector of Taxes having treated the amended return as a request on the tax payer’s part to have the provisional tax assessment revised. The case in question involved a tax payer who had filed a second tax return in response to both his employer and his tax consultant having advised him that the gains from a profit participating loan should be accounted for as ”Box 1 income from lucrative interest”. The tax payer’s failure to adhere to this advice in his second return had been tantamount to his acceptance of the considerable chance of his not having provided the Inspector of Taxes with the right information. The Supreme Court duly upheld the Hague Court of Appeal’s (earlier) verdict to the effect that the tax payer had been acting in bad faith and the Inspector of Taxes had thus been within his rights to levy an additional tax assessment.

Dutch version: Navordering wegens kwade trouw