Value-added tax on lawyer’s fees

The Court of Appeal in January of this year delivered its verdict in a case involving input tax deduction for lawyer’s fees by ruling that the value-added tax charged on legal advice fees should not be deductible as the tax payer in question had failed to render it sufficiently plausible that the value-added tax had related to his business operations. 

The case revolved around a trust office which the tax payer in question was running as a sole tradership, which trust office was the sole executive director of a foundation. The foundation had presented the tax payer (sole trader) with an invoice for several years’ worth of legal advice fees – in connection with a lawsuit brought by the tax payer in connection with multiple securities lease agreements – which it had charged with value-added tax, which the tax payer (sole trader) had gone on to deduct by way of input tax. 

A tax audit prompted the Inspector of Taxes to levy an additional tax assessment having arisen out of adjustments to several items including the value-added tax component of the legal fees, prompting the question as to whether the sole trader’s input tax deduction had been justified or not. 

Having argued that the tax payer (sole trader) in question had entrepreneurial status for value-added tax purposes whereas it was the trust office which actually constituted the business, the District Court had gone on to assert that the sole trader had failed to render it plausible that the business had an additional involvement in asset management, the definition of business operations as per the relevant Commercial Registry entry falling short where this was concerned, in addition to which the equity lease products in question had not been accounted for in the context of the business’ annual report and accounts so that these operations had to be regarded as being independent of the business, so that the deductibility of the value-added tax charge on the lawyers’ fees had to be ruled out. The argument that the resources used for the securities lease had originated with the business was dismissed as lacking relevance. 

The Bois-le-Duc Court of Appeal sided with the District Court, affirming that it had been up to the tax payer (sole trader) to present adequate proof of his entitlement to input tax deduction, which onus of proof the tax payer had failed to meet by not rendering it plausible that the fees in question had been incurred in a business context, the upshot of all of this being that there could be no question of input tax deduction entitlement.

Dutch version: BTW advocaatkosten