The value of tax rulings
Being able to make advance agreements with the Revenue is important. It enables an enterprise to obtain assurance about the tax treatment of certain transactions or activities. That tax treatment does not always follow unambiguously from the text of the tax law. Typically the Dutch legislator does not include limitative and rigid definitions but uses open terminology. These open terms are to be explained in practice and jurisprudence and may develop over time to reflect changes in the economical environment.
There is a downside of this approach. The open terminology prevent that rules are too rigid but they also reduce the legal security. Companies do not appreciate long periods of uncertainty about their tax situation. Making agreements with the Revenue is a welcome opportunity, therefore, to obtain the desired legal security.
But how sacred is an agreement with the Dutch Revenue? A year ago a huge political debate was triggered when it became public that the Revenue had agreed with inhabitants of a caravan camp that they had to pay only 3% income tax. Clearly the Dutch income tax law does not provide for such possibility. The debate caused the ministry of finance to tighten the reins. The ministry published a (very useful) list of agreements identifying whether those are still possible or those are not longer acceptable because of conflict with the law.
Has practice changed since then? Without doubt the answer is affirmative if we restrict ourselves to the possibility of making new agreements with the Revenue. Tax inspectors are more aware of the restrictions that result from the guidelines published in 2004. Still there is room to agree practical solutions where the tax rules appear to be too rigid but in an increasing number of cases the text of the law prevails above the sprit thereof.
The stricter rules also inspire tax inspectors to take a closer look at old agreements. It is possible that a tax inspector judges that some agreements made in the past are not longer acceptable because of the new insights. This even in cases where the agreements are not included on the list of the ministry of finance. A company that thought it obtained assurance of the tax treatment may still be confronted, therefore, with a discussion with the Revenue.
Here practice threatens to make an about-turn resulting in a too formal approach. We believe this breach of the legal security is unjustified. If it concerns the validity of old agreements, recent case law still follows the traditional approach. There are no signs of a more strict interpretation of the tax law by the tax courts. A deal is a deal. Even implicit agreements can raise enough trust at the level of the tax payer that the tax inspector must honour this trust. I a recent court case the tax court in Den Bosch concluded that the Revenue could not impose tax because the tax payer justifiably believed that the benefit at stake would be untaxed. The Revenue had not imposed tax on the benefit after discussion of the relevant facts during a state tax audit. Not taking action had to be interpreted – according to the tax court – as an implicit approval from the tax inspector of the (incorrect) tax treatment.
Such court cases provide a helping hand to taxpayers that are confronted with a discussion whether the tax inspector is allowed to renounce old agreements because of conflict with the law. If tax courts conclude that the Revenue must honour implicit agreements, this is bound to apply to explicit agreements as well.back to overview