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Excessive burden leads to a tax reduction in box 3 Dutch equity tax

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An excessive burden can lead to a (time-proportional) reduction of box 3 (Dutch tax on equity). A previous ruling by the Court of Appeal has now been confirmed by the Supreme Court.

It regarded a very specific case in which a man had invested his capital in SNS Reaal shares on 31 January 2013. A day later, i.e. on February 1, 2013, the Dutch State took over the shares of the financial concern to save SNS Reaal from a probable collapse.

Per box 3 reference date 1 January 2013, this man owned approximately EUR 275,000 in the form of shares in another company. This investment he exchanged for the shares in SNS Reaal, which became worthless on 1 February 2013. Because of this unpleasant turn, the man’s income fell below the poverty line.

Despite the fact that the reference date in the box 3 system does not take account of the development of the assets during the remainder of the tax year after the reference date, the Court felt that this was still an excessive burden in the tax year 2013.

This excessive burden arose, according to the Court, with regard to the fiscal year 2013 from 1 February to the end of 2013. As a result, the Court has applied a time-proportional reduction over the box 3 capital for the period February to December, so that his capital was only taxed for a pro rata 1/12th part.

The Supreme Court has followed this ruling of the Court, but it also found that the Court went very far in applying non-existing legislation in terms of a time-proportionate application.

It is questionable whether this ruling can also apply for example when crypto coins collapse. For more recent tax years, it can in any case be advisable to object to the height of the deemed interest used in box 3. This ruiling indicates that some evidence to the contrary – in addition to the stacking of deemed interest – is still permitted.

As an alternative to box 3, it is possible to only be taxed for the actual interest in box 2! For example, in case of fluctuating and / or low-yielding assets.

We can assist you with drawing up your personal income tax return, we can also assist you in a possible objection procedure.

Tax refund if your tax burden fluctuated over a period of three years

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You could be eligible for a tax refund if your tax burden fluctuated strongly over a consecutive period of three years.

Did you have a highly variable income spread over three consecutive years? Then you probably pay more tax than if you receive that income evenly over a year. You can then qualify for the so called averaging scheme (“middeling”).

With averaging you calculate your average income over 3 consecutive calendar years. This is the averaging period. You then calculate how much tax you have to pay per year. Are the new tax amounts lower than those of the previous attacks? Then you may be entitled to a refund.

For whom is averaging meant? Here are a number of example situations:

You got a permanent job after your graduation and you had a part-time job besides your studies.
You received a severance payment (‘golden handshake’) and then a WW benefit.
You have started or stopped working in recent years.
You work as a freelancer or as an entrepreneur.
You have taken unpaid leave (for example for a sabbatical).
You started working part-time.

Are you a foreign taxpayer in one or more of the relevant three years. Then the following applies to the averaging arrangement.

From tax year 2015
You may use the averaging arrangement if you are a qualifying non-resident taxpayer (no longer a choice).

Tax years 2014 and earlier
You may use the averaging arrangement if you have opted for the resident taxpayer as a foreign taxpayer. Or if you earn 90% or more of your total income (worldwide income) in the Netherlands.

We can take care of the entire procedure for averaging. In addition, we can assist you in drawing up your income tax returns.

Proof may not be reversed without invitation letter

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The Dutch tax authorities may not reverse the burden of proof if an invitation to file a personal income tax return (aangiftebrief) has not been sent them first.

Recently, Tax Court issued a judgment in a case in which the tax authorities wanted to reverse the burden of proof after imposing an ex officio estimated income tax assessment.

The taxpayer in this case had not filed a tax return and also had not received an income tax return invitation from the tax authorities. The inspector made an ex officio estimated tax assessment and took the view that the burden of proof was on the taxpayer to refute the amounts of the ex officio tax assessment.

The Court saw sufficient reason to submit the burden of proof – of the estimated amounts of the ex officio assessment – to the tax authorities because the taxpayer did not submit an (incorrect) declaration and had not received an invitation to file a tax return. At least the inspector could not provide evidence that such an invitation had indeed been sent to the taxpayer, although the inspector was convinced that it was.

Incidentally, the inspector in this case still had the chance to successfully defend the height of his ex officio attack so that this estimated tax assessment was maintained.

Perhaps the Tax Authorities will try to prevent a similar future case as much as possible by sending many taxpayers an invitation to file a tax return.

7.9 million people were invited over the tax year 2017, including persons who would not actually have to file a declaration, making the invitation in such cases more like an unauthorized ‘fishing expedition’.

The law hereby imposes the following restriction on the inspector: “Pursuant to Article 6 paragraph 1 AWR, the inspector … can invite the person who, in his opinion, is presumed to be liable to pay tax or is liable to pay deductions.” So there must be a suspicion before an invitation can be send.

In view of the formalities and the impact of such an invitation, it should only be issued in evident situations: “anyone who has been invited to prepare a tax return is required to make a declaration by means of the information requested in the invitation, clearly, firmly and without reservation….”

With or without tax return invitation letter (aangiftebrief) we can be of service to you when drawing up your personal income tax return.

Tax qualification Interest Rate Swap (IRS) mortgage loan and box 3

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Dutch High Counsil has now decided that an Interest Rate Swap (IRS) with a negative value is to be part of the debt in box 3.

An IRS is a complex financial product used in many loan varieties. In short a IRS  is an agreement between an individual/company and the bank on the basis of which this individual/company has an obligation towards the bank on the one hand and a right against the bank on the other. The IRS is generally used to manage or hedge interest rate risks, or to speculate on developments in interest rates.

The value development of an IRS is largely dependent on the development of the fixed market interest rate. If the fixed market interest rate falls in relation to the agreed fixed interest rate, the swap will have a negative value for the individual/company and vice versa.

Last year the Dutch High Court had already decided that reimbursements paid on an IRS related to financing of own home properties were non tax deductible. The reason being that the link between the IRS and the finance loan for own home propierty was to limited to allow a deduction of costs related to this IRS.

The most recent decision to qualify such negative value of an IRS as a debt in box 3 is therefore in line with last years’ decision to view the IRS as a separate asset and liability towards the bank.

More in general, if you own a financial product abroad than for tax purposes the qualification of such product (e.g. annuities, pensions, deposits, loans and other financial plans) is to be done according to Dutch tax standards.

It is recommended that you perform such qualification as otherwise the Dutch tax office may – in case they successfully claim such product to be taxable in the Netherlands – impose additional tax assessments plus fines and interest for the prior twelve tax years.

We can assist to prepare such a qualification of your foreign financial products according to Dutch tax standards.

Furthermore we can take up the correct qualification of your income, assets and debts in your personal income tax returns.

 

Deadline personal income tax return 2017 & be aware of interest

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Now that the year 2017 has ended, it’s time to prepare for the Dutch personal income tax return 2017! Although the Dutch tax office has recently stretched the filing deadline in the Netherlands from April 1st 2018 till May 1st 2018 in the so called aangiftebrief 2017, it could be interesting to file your 2017 personal income tax return before April 1st 2018.

In case you have to pay additional personal income tax on your personal income tax return 2017 be aware of the accruing interest (‘belastingrente’) on the amount on tax due following the 2017 personal income tax return. The tax office may start calculating interest as of July 1st 2018 in case no personal income tax assessment over tax year 2017 has been imposed yet.

The tax authorities have three months to impose a personal income tax assessment 2017 after having taken receipt of a personal income tax return 2017. During this 3 months period they retain the right to charge interest on the tax amount due following the 2017 personal income tax return.

Since the interest rate is fixed at 4% on annual basis, this interest rate is well above any interest percentage you may expect to receive on a Dutch bank current account / savings account.

Additional personal income tax may be due e.g. in case of savings held above the applicable thresholds or other taxable income which was not yet taxed, e.g. by means of wage tax and/or a preliminary tax assessment.

Another possible reason to file your personal income tax return 2017 before April 1st 2018 is that the tax authorities ‘guarantee’ a reply (mostly by way of a personal income tax assessment 2017) before July 1st, 2018. This could be especially interesting in case of an expected tax refund, e.g. in the year of migration (immigration or emigration).

We can assist with the full process to file your personal income tax return. If needed we can arrange for a lengthy filing extension of your personal income tax return 2017, however be aware that the possible interest calculation will not be extended by the tax authorities.

Some brief additional information on the Netherlands Dutch personal income tax system can be found here.

 

 

 

 

VAT rules e-commerce change for long distance sales B2C

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The EU Cabinet recently approved a change in the VAT rules for e-commerce long distance sales. The change is planned to take effect as of the year 2021.

The current VAT rules state that such sales – when exceeding a certain threshold on sales – are subject to local VAT of the private consumer in case the e-commerce shop also takes care of the shipping of the goods.

This leads to a heavy administrative burden for e-commerce (web)shops as they have to register for VAT purposes with the local tax authorities in all countries where there clients are living and they have to follow all specific local VAT laws to fulfil their VAT compliance.

As of 2021 the e-commerce shops are allowed to pay all foreign VAT to solely the tax authorities in their own country of residence. This will result in a lowering of the administrative burden as compared to the current regulation.

The various foreign VAT rates will remain to apply. The already existing ‘MOSS’ (mini one stop shop) regulation for e.g. telecom services will then also apply on long distance e-commerce sales.

An e-commerce shop which is located in the Netherlands can perform the MOSS filing electronically through the website of the Dutch tax authorities or through commercial VAT software of their financial intermediary.