How ‘knew or should have known’ of VAT fraud leads to criminal punishment

Knew or should have known’ is the magical formula by which the Dutch Tax Authorities are trying to tackle VAT fraud. For the zero rate (on deliveries within the EU) or the right to deduct input tax to be refused, it is sufficient that the taxable person ‘should have known’ that their suppliers or buyers (who are often in other countries) committed VAT fraud. A retrospective levy (usually of 21%) because you have failed to properly inform yourself feels pretty much like a penalty. This is problematic because these grounds for a retrospective levy are not regulated by law, and hence conflict with the principle of ‘no penalty without law’. This blog explains how this state of affairs came to exist.

Businessman trapped on mousetrap on white background.

Criteria for zero rate / deduction of input tax

The VAT system is arranged in such a way that a business supplying goods to a business in another EU Member State charges 0% VAT (the zero rate). In addition, although the business supplying the goods does not charge VAT, it does have the right to deduct input tax. In its ruling on the VSTR case, the European Court of Justice (ECJ) determined (in section 30) that three criteria are applicable here:

  • The buyer acts in the capacity of taxable person;
  • There is a transfer of power to dispose of goods as owner; and
  • The goods have been (physically) relocated (to another Member State).

In addition, the ECJ determined that no other criteria but these three can be set for the ability to apply the zero rate and the right to deduct input tax. However, in the ruling on the Halifax case, the ECJ determined that if tax fraud is committed by the taxable person him/herself (‘for example, by presenting a false tax return or drawing up false invoices’), then these criteria are not met (and thus there is no right to apply the zero rate or deduct input tax).

The ECJ does not explain which criterion has not been met in the event of fraud. This may have to do with the ECJ’s determination in section 52 of the VSTR ruling concerning the ‘capacity of taxable person’, i.e. that the supplier is required to act in good faith and to take every measure which can reasonably be required of him to ensure that the transaction that he effects does not lead to his participation in tax fraud. The latter is also referred to as ‘prudent business management’.

The Kittel ruling

The ruling in the Kittel case was ground breaking. This because, in that ruling, the ECJ determined that:

“In the same way, a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT (…), must be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods.”

Due to this ruling, it is no longer necessary for the relevant taxable person to have committed fraud for the zero rate or the right to deduct input tax to be refused. It is sufficient that he ‘knew or should have known of fraud in the chain of deliveries’ he was involved in. With this, the ECJ has tried to give the European tax authorities more resources to combat VAT fraud. Because a retrospective levy in the Netherlands does not affect the taxability of the acquisition in the other country, Prof. Van Hilten spoke in her oration of 24 November 2016 of a ‘ghost tax’ which has the effect of disrupting competition.

Is a retrospective levy of 21% a penalty?

If it turns out that a business in Europe has supplied goods at 0% VAT, while according to the Tax Authorities it should have noticed the possibility of fraud on the part of the buyer, a retrospective levy can be imposed at the applicable rate (usually 21% in the Netherlands). The question arises as to whether this amounts to criminal punishment (of the negligent business). This is relevant because, pursuant to Article 7 of the European Convention on Human Rights, no penalty can be imposed unless the deed was already an offence under law (which is not the case here). In the landmark ruling on the case Engel versus The Netherlands, the European Court of Human Rights (ECHR) formulated three criteria on the basis of which the Court judges whether a penal sanction is applied. These criteria are as follows:

  1. The qualification according to international law
  2. The nature of the offence
  3. The nature and the degree of severity of the penalty

In later jurisprudence, the ECHR has indicated that it regards the second and third criteria in the Engel ruling as of particular importance. In relation to the second ‘Engel’ criterion, the Court of Justice’s comment in the Kittel ruling concerning the nature of ‘knowing or should have known’ of fraud is significant:

“57    In such a situation the tax subject is, after all, aiding the fraudsters and he becomes their accomplice.

58     An interpretation of this type counteracts fraudulent activities by making it more difficult to accomplish them.”

In relation to the third ‘Engel’ criterion, the nature and the degree of severity of the penalty, it is important to notice that VAT is intended to tax consumption and should therefore not be imposed on businesses. A retrospective levy of 21% can therefore only be intended as a ‘deterrent’. The deterrent function of penalties also plays a central role in criminal law. With respect to the ‘degree of severity of the penalty’, it is also relevant that the refusal of both the zero rate and the right to deduct input tax means that the business is de facto doubly punished. Finally, I refer to the overkill at ‘chain level’ which the ‘knew or should have known’ approach entails. In this way, in fact, retrospective levies can be imposed on several (if not all) businesses, so that more VAT is levied in total than was lost due to the fraud. In my opinion, this overkill underlines the punitive nature of the extrajudicial facility to impose retrospective levies on ‘participation in fraud’. Judging by the ‘Engel’ criteria, the conclusion is that there can be little doubt as to whether a punitive penalty is involved.

The Italmoda and Stehcemp rulings

Regarding the answer to the question whether criminal punishment is involved if the business, which knew or should have known of fraud on another’s part, is refused the zero rate or the right to deduct input tax, the ECJ gives varying signals. For example, the Court denied this in its ruling on the Italmoda case. In section 61, the Court determined that there was no penalty, because the refusal of the right to deduct input tax ‘is purely the consequence of the omission of the criteria required for this in the relevant stipulations of the Sixth directive’ (as mentioned previously). This approach is appealing in cases where the goods have only fictionally been traded. The reasoning appears to be “no ‘real’ trade/deliveries, so no deduction”.

In its (later) ruling on the Stehcemp case, the key issue was the right to deduct VAT input tax on invoices from a non-existing (fraudulent) business. The Court of Justice ruled that the assertion that the supplier was fraudulent does not detract from the right to deduct input tax, and that this changes only if the Tax Authorities can demonstrate that the taxable person ‘knew or should have known’ of the fraud. In this context, the Court of Justice does speak of a penalty:

“49. By contrast, where the material and formal conditions laid down by the Sixth Directive for the creation and exercise of that right are met, it is incompatible with the rules governing the right to deduct under that directive to impose a penalty, in the form of refusing that right to a taxable person who did not know, and could not have known, that the transaction concerned was connected with fraud committed by the supplier, or that another transaction forming part of the chain of supply prior or subsequent to that transaction carried out by the taxable person was vitiated by VAT fraud (…)”

Criminal risk liability

It is clear that everything hinges on the knowledge of the taxable person. A person who did not know (and ‘could not have known’) of the fraud cannot be penalised with refusal of deduction of input tax. A contrario, one may infer from this that a penalty can be imposed, in the form of refusal of the right to deduct input tax, on someone who knew or should have known, that he participated in fraud but did not himself commit fraud. Although there is no excuse for penalising if there is no prior legal basis for imposing a penalty, it is still possible to have (some) appreciation of this if there is a question of ‘knowing’ of fraud. However, with the phrase ‘should have known’, it appears that a criminal risk liability has arisen in the approach of the Court of Justice. This contrasts with the requirement in Dutch criminal law that intent must be proven for a fraud conviction, with conditional intention being the lower limit. For that, it is sufficient that the person involved consciously accepted the significant likelihood that a certain consequence will ensue, from which it can be objectively ascertained that the suspect (apparently) intended to commit the proscribed action. By contrast, with the phrase ‘should have known’ in relation to VAT fraud, the Court of Justice appears to assume gross negligence. This is because it opted not to deduce the ‘knowing’ from the lack of diligence (as with conditional intent), but to create a separate category for the purpose (‘should have known’) which deserves the same consequence (a retrospective levy of 21%). In the Netherlands, gross culpability is not sufficient for a criminal conviction in cases of suspected fraud. And there’s the rub. The possibility exists that this will cause the tax inspector to primarily become a public prosecutor in cases of VAT fraud, because the court dealing with tax affairs can reach a penalising verdict under more flexible conditions. Of course, it is already the case that the tax inspector can impose penal fines, with the subtle difference that such fines are linked to (a percentage of) the tax that was falsely unpaid and cannot be imposed without a tax assessment (only to penalise).

An identical paragraph to the one in the Stehcemp case can be found in section 47 of the ruling on the Mahagében case.

Conclusion

With the European jurisprudence concerning a taxable person who ‘knew or should have known that he participated in fraud’, VAT can be retrospectively levied on businesses that did not act carefully in supplying goods within the EU. Viewed from various perspectives, this possibility for retrospective levies, developed in jurisprudence, bears great similarity to criminal punishment. This is also apparent after comparison with the criteria developed by the ECHR for this purpose. The conclusion that criminal punishment is involved conflicts with Article 7 for the European Convention on Human Rights because a retrospective levy on a ‘negligent’ taxable person who ‘knew or should have known’ has no legal basis and, furthermore, is not explicitly regulated in the European VAT directive. In the Italmoda case, the Court of Justice denies that penalisation comes into play in cases where the ‘relevant criteria’ for the right to deduct input tax are not met. In its rulings on the Stehcemp and Mahagében cases, the Court of Justice does mention criminal punishment in this context. The conclusion that a retrospective VAT levy constitutes criminal punishment is even more alarming in cases where the taxable person did not know of fraud but ‘should have known’ of it. In these cases, there is no intent to defraud that can justify criminal punishment.

Nick van den Hoek, Attorney at law

 

 

Tax evaders at Credit Suisse decide before 24 March: withhold information from the tax authorities?

Next week, the deadline for preventing the provision of information to the Netherlands by the Swiss Federal Tax Authority (FTA) will close. Following the UBS, Credit Suisse has now also received a request to provide information about its ‘tax evaders.’ Although the only possible conclusion, in my opinion, is that this is a fishing expedition and therefore not permitted based on the Treaty, information will be provided if no objection or appeal is brought against the request. If a ‘saver’ has not (yet) been disclosed to the tax authority in the Netherlands, the stakes may be high.

Zurich, Switzerland - September 9, 2012: Main entrance of the Swiss bank's Credit Suisse headquarter on Zurich Paradeplatz.

Credit Suisse exchange of information

After it was announced at the end of last year that the Swiss bank had provided UBS with information on the request of the Tax Authority, Credit Suisse also informed its Dutch ‘tax evaders’ on 4 March 2016 that – unless an objection was filed – that it will provide their banking information to the Dutch tax authority via the Swiss Federal Tax Authority. This time it concerns a group request, whereby the banking information of all Dutch citizens who had an account at Credit Suisse, with a balance of at least EUR 1,500 between February 2013 and the end of 2014 will be provided. Information about bank accounts that have been closed in the meantime will therefore also be exchanged.

Following the initial success with the UBS and Credit Suisse, it is expected that similar group requests will be made to the Swiss banks Julius Bär, UBP and Sarasin.

Deadline until next week

Credit Suisse has now also sent a letter to a group of identified Dutch savers with the request from the Swiss tax authority as an enclosure. These savers must respond to the letter within 20 days after the letter – so, before Thursday, 24 March – providing either an address in Switzerland or a Swiss authorised representative.

If there is no response, there is threat of an ‘anonymous publication’ in the Bundesblatt – the ‘final decision’ will be published here, which will mean:

  • that, according to the Swiss tax authority the requirements for information requests have been met;
  • that the request from the Netherlands can be executed for the period from 1 February 2013 to 31 December 2014;
  • that the information was requested from the Credit Suisse by the Swiss tax authority;
  • that the parties involved cannot file any objection or appeal against this.

Doing nothing is providing information

The previous group request to the UBS showed that information about savers who did not respond was actually provided to the Netherlands. More and more (ex) UBS account holders are receiving post from the Tax Authority stating that they have been identified as an account holder. It looks like (a lot) more information from Switzerland has been provided than the ‘approximately 100’ that have been reported so far.

Various objectors that had indicated in Switzerland that the voluntary disclosure procedure has started in the Netherlands have been able to successfully stop the provision of information. The procedures that were appealed at the Swiss court are still on-going and we the outcome of these is still pending. The race of the Dutch tax authority is therefore not over yet. Given the text of the Treaty, it is my expectation that the (highest) court in Switzerland will ultimately rule that the group ‘fishing’ request has to be rejected.

Well-founded appeal

After the final decision – which may or may not be published in the Bundesblatt – the appeal for this group of Credit Suisse savers may be appealed within 30 days. All cards have to be on the table for this, however: all the reasons why the persons involved disagree with the provision of information to the Netherlands must be stated directly in the appeal.

To prevent the provision of information, the following has to be done within this 30-day term:

Request for ‘banking institution correspondence’

The latest development in the land of voluntary disclosure is that the Tax Authority is now routinely requesting the foreign bank’s correspondence. The Tax Authority, moreover, claims that providing this letter or these letters is supposedly mandatory. Correspondence that shows that a saver was aware of possible or intended provision of information, or in which it is states that the obligation to report equity to the Dutch tax authority is, however, not relevant for the levy.

After all, the tax to be paid does not depend on whether your bank wrote about tax obligations or the possibility of information being provided to the tax authorities. The correspondence may, however, be incriminating: the knowledge of which means that you are too late for voluntary disclosure? Because it is not relevant to the amount of the tax to be paid, taxpayers are therefore not obliged to provide this and the tax authorities therefore cannot force them to do so. In my opinion, the Tax Authority is abusing their power by making this request.

Voluntary disclosure is still possible

The interest that the tax authority does have (or thinks they have) is the penalty interest: these types of letters could be used to prove that the disclosure is too late. This, however, is still open to debate. It has not yet been determined what the final ruling is going to be on the justification of the Dutch group request. In other words, anyone that knew that they were on ‘the list’ following the group request, did not have to expect that information would be provided to the Netherlands and that the tax authority would track them down anyway. Voluntary disclosure is therefore still possible.

Mr. V.S. (Vanessa) Huygen van Dyck-Jagersma

Reduction of the default penalty: how to achieve that?

Every year, millions of Dutch people receive a request from the Tax Authority to declare their income by filing a tax return. This declaration must be submitted within a period set by the inspector (usually by 1 April). A taxpayer may request an extension. If the declaration is not received on time, the inspector will send a reminder. If the taxpayer still does not respond or responds too late, the inspector may impose a default penalty. This default penalty can be a substantial amount. If you or your client has received a default penalty, read here how – under what conditions – that penalty can be significantly reduced.

Stressed Man At Desk In Home Office With Laptop

Obligation to file a tax return

For income tax and corporate tax, a taxpayer is invited by the inspector to make a declaration. The taxpayer is then obliged (AWR, Article 8) to respond to this to this invitation. The deadline for this is at least one month. In practice, this means that the income tax return must have been filed before 1 April. This year taxpayers were given a longer deadline, namely until 1 May. A corporate tax return generally has to be filed before 1 June. A taxpayer and/or his tax consultant may ask the inspector to extend the deadline for filing the income tax and/or corporate tax return (AWR, Article 10).

If the inspector has not received the tax return before the end of the deadline, the taxpayer will be sent a reminder (AWR, Article 9). In this reminder, the inspector will provide the taxpayer with an additional deadline for filing the tax return. If the taxpayer still does not file the tax return form or is late in doing so, the inspector may impose a penalty. That penalty may be a default penalty or a financial penalty.

A default penalty is imposed if a tax return is not filed or not filed on time. If a tax return is intentionally not filed, the inspector may impose a financial penalty. This blog examines the default penalty for not filing, or the late filing of, tax returns in more detail.

Default penalty

If the tax return is not filed, or filed late, the inspector may impose a default penalty. In order to be able to do this, the inspector, as already mentioned earlier, will have already reminded the taxpayer to file a tax return. If the taxpayer ignores this reminder as well, he is in default.

Article 67a of the AWR stipulates that the maximum amount of the default penalty for not filing, or late filing of, the tax return is € 5,278. Further requirements connected to imposing a default penalty are set out in more detail in the Administrative Fines (Tax and Customs Administration) Decree (BBBB).

Paragraph 21 of the BBBB regulates that the inspector will impose a default penalty of 7% of the maximum, i.e. € 369.46, if the taxpayer has not filed, or is late filing, the income tax return. If it is a company that has not filed, or is late filing, its corporate tax return, the default penalty will be 50% of the maximum, € 2,639.

Absence of all blame

The inspector can and may not impose a default penalty if the taxpayer cannot be held responsible (BBBB, paragraph 4). If the inspector only realises this during the objection phase, he will render the imposed default void. The reasoning behind this is that if the taxpayer cannot be held responsible, he has also not been in default. When is the taxpayer at fault? Who has to prove that?

The burden of proof, in the sense of demonstrating that there is an ‘absence of all blame’ rests with the taxpayer. He must present the facts and circumstances on the basis of which it can be concluded that, under the given circumstances, he has tried to ensure in all reasonableness that the tax return was filed on time (HR 15 June 2007, no. 42687, ECLI:NL:HR:2007:BA7184).

It follows from case law that it is difficult for a taxpayer to tackle this burden of proof. In the majority of cases, an appeal made by the taxpayer based on the ‘absence of all blame’ is rejected by the tax court.

One example of where the appeal was granted concerned a taxpayer who had not thought of having to file a tax return during his illness. The ’s-Hertogenbosch Court ruled that the taxpayer could not be held responsible for filing the tax return late. This ruling concerned both the circumstance that the taxpayer had not thought of filing the tax return and the circumstance that he had not made any arrangements for a ‘replacement’ before he became ill. In the case of the latter, it was important that the taxpayer had, in fact, been caught unawares by a hernia, the necessary operations and the duration of his illness.

Another example of a successful appeal based on the absence of blame is the company that had engaged a consultant to file the corporate tax return on time. This consultant had asked the inspector for an extension for filing the tax return, using a new software package. It transpired later on that an incorrect tax number had been used. On receipt of the reminder (a reminder had been sent first) and the final notice, the company contacted its consultant. In turn, this consultant phoned the tax information line. The tax information line employee informed the consultant that without any notice to the contrary, he could assume that the reminder had been wrongly sent. Despite this, when calculating the corporate tax, a default penalty was imposed. The company objected to this. The court and the court are of the opinion that, considering the consultant’s responses, the company could assume that the reminder and the final notice had been wrongly sent. Because the company reacted decisively to the receipt of the reminder and the final notice, the court and supreme court ruled that the company acted with the due care reasonably expected of it. The company, according to the court and the supreme court, did not have to go so far as to check the statements of its consultant. The default penalty was rendered void.

 The imposition of a default penalty should be done on an individual basis

Proving an ‘absence of all blame’ is subject to strict testing. In practice, tax payers often appeal on this basis to no avail. Nevertheless, imposing a default penalty should be done on an individual basis. The BBBB affords the inspector some freedom in determining the amount of the default penalty. That freedom may or may not work in the taxpayer’s favour.

If a taxpayer consistently neglects to file the tax return time and time again, the inspector may increase the default penalty to the maximum of € 5,278 (BBBB, paragraph 21.6). This increase is higher for the income tax than it is for the corporate tax, because the starting points for both taxes are different.

The taxpayer who has received a warning from the inspector that the tax return has yet to be filed has three options: respond on time, respond late or not respond. If the taxpayer does not file the tax return within the additional period, but does so before the inspector calculates the assessment or decides on an objection, the inspector will reduce the default penalty (BBBB, paragraph 21. 8, BBBB). The taxpayer will then be given a default penalty of 1% of the maximum (€ 52.78) for the income tax and 5% of the maximum (€ 263.90) for the corporate tax.

Work agreements

It has now transpired that the Tax Authority and the Ministry of Finance have made other agreements than those provided laid down in the BBBB. These work agreements were initially not announced. To force this announcement, a request was submitted under the Government Information (Public Access) Act (WOB), with success. This WOB request ensures that the government, in this case the Tax Authority, must announce the work agreements on the reduction of default penalties. The Tax Authority has now done this.

These work agreements pertain to the situation that a taxpayer has not filed, or has been late filing, the income tax return and/or corporate tax return.

If the taxpayer has not filed the tax return and he then receives an estimated assessment, he can respond to this in two ways. First, he can object to the estimated assessment. That objection will then be processed by the inspector. The second option would be for the taxpayer to go ahead and file the tax return. The inspector will also regard such action as an ‘objection’.

In the first situation (objecting), the inspector will ask the taxpayer to still complete and file the tax return. The taxpayer will be given six weeks to do this. If the taxpayer fulfils this request, the inspector will assume that the taxpayer will improve his tax compliance behaviour (in the future). The imposed default penalty after the tax return has been filed (in principle, € 369.46) will then be reduced to € 49. In the case of corporate tax, the default penalty (in principle, € 2,639) will be reduced to € 246.

In the second situation (late filing of the tax return), the default penalty will be immediately reduced to € 49 (income tax) and € 246 (corporate tax).

It seems that a taxpayer who only files the tax return during the objection phase is treated better than the taxpayer who files the tax return before the estimated assessment is calculated, (although late). Paragraph 21.8 of the BBBB stipulates that in that situation a default penalty of 1% – € 52.78 – (income tax) or 5% – € 263.90 – (corporate tax) will be imposed.

To counter this unequal treatment, it is incorporated into the work agreements that in this situation the default penalty will also be reduced to € 49 (income tax) and € 246 (corporate tax). The Tax Authority’s system should process this automatically.

By filing the income tax and/or corporate tax return late, a taxpayer can reduce the imposed default penalty considerably. So, a big financial gain for little effort.

Conclusion

A taxpayer who is invited to file a tax return, must file it on time. If the taxpayer does not do this, he will receive a reminder to do so. If the taxpayer ignores this, the inspector may impose a default penalty. This default penalty is generally € 369.46 (income tax) or € 2,639 (corporate tax).

If the taxpayer cannot be held responsible for not filing the tax return, or for not filing it on time, a default penalty cannot be imposed or the imposed default penalty must be rendered void. The burden of proof of this ‘absence of all blame’ is difficult. However, this does not make the case hopeless for the taxpayer. The default penalty can be substantially reduced in a relatively simple way. How? By simply filing the tax return form. The inspector will then assume that the taxpayer has improved his tax compliance behaviour and as a reward for this the default penalty will be reduced to € 49 (income tax) of € 246 (corporate tax).

Mr. M.H.W.N. (Marloes) Lammers

Confiscating and taxing leads to being caught twice!

Since the income from the proceeds of crime are taxed in the year in which it is earned and the deduction of a many years later irrevocable confiscation order is only deductible at the time of payment, the levying of taxes on criminal income (apart from a fine yet to be imposed) and subsequently ‘confiscating’ leads to a debt to two components of the same government; confiscating and taxing leads to being caught twice! In its entirety, both go way beyond the actual income generated from crime. Despite that the intention is that taxation and confiscation do not accumulate. Because losses, so also those resulting from the deductibility of a paid confiscation, are only deductible one year behind and from there on forwards, the deductibility of a slightly hefty confiscation order is the only solace for a criminal with a (continuous) high income. The question is whether the provisions of the new AAFD (Reporting and Processing Tax Offences) protocol for coordination between the tax authority and the Public Prosecutor provide a solution for this problem.

businessman with an orange tie turning his empty pockets inside out. Front view, no head. Isolated. Concept of bankruptcy.

New AAFD protocol

As of 1 July 2015 a new protocol came into effect on the reporting and processing of tax offences. My colleague Vanessa Huygen van Dyck wrote in her blog of 2 July last year that possible criminal alternatives for the confiscation could lead to more than the earnings being creamed off. A problem that has existed somewhat longer is that the Supreme Court does not allow a provision to be implemented for a confiscation order that has not been paid yet, nor enforceable so that based on the (old) policy effective cooperation takes place.[1] I discussed this problem in detail in 2013 in two articles on the policy on this issue, and the ruling in European perspective.

While much of the text is comparable to older decisions the coordination is worded as follows:

‘This protocol primarily provides for the coordination between the Tax Authority and the Public Prosecutor on (the prevention of) concurrence between administrative and criminal settlement. A comparable form of accumulation arises with the confiscation of the proceeds from crime. Article 74 of the AWR provides for a univocal anti-accumulation provision for confiscation with respect to criminal offences under the Tax Act. However, no comparable regulation is stipulated for confiscation in respect of other offences. It is therefore necessary that the Tax Authority and the Public Prosecutor coordinate on those cases with respect to the enforcement efforts.

 Confiscating criminal assets is a valuable means in combatting crime. The Public Prosecutor has established rules for the judicial confiscation of financial profits obtained from criminal activities. One of these rules is that coordination takes place with the Tax Authority. Proceeds obtained in social and economic life are in principle liable to taxation. It is no different when the proceeds are obtained by criminal activities. It should be prevented that the taxation of proceeds from crime and the judicial confiscation of those proceeds do not interfere with each other in an undesirable way. That is why the Public Prosecutor has agreed that the Tax Authority cause as little interference as possible to the criminal sanctioning and confiscation of proceeds from crime.

 To prevent the suspected/convicted person from being confronted with a tax levy on the proceeds of crime, after a confiscation measure has been imposed, or a settlement or transaction with a confiscation component is agreed, the Public Prosecutor coordinates with the Tax Authority on the intention to confiscate when the estimated proceeds are at least € 5,000.’

Will it work?

Coordination was already prescribed. Experience shows, however, that the coordination either never took place, or seemed to focus on informing one another so that not only one or the other occurred. Therefore not focused on preventing accumulation, but on bringing it about.

Opinions on not interfering with each other in an undesirable way with regard to taxation and confiscation may vary. I understand from the text that more creaming off than earned with crime is an undesirable action, which should be avoided by means of coordination. After all, the aim of confiscation is to restore the criminal to the income and assets position that he held before his crime. It is not intended as additional punishment. Income that is not ultimately enjoyed (on account of confiscation, or repayment to the victim) does not have to be taxed, unless you would only confiscate the result after tax (which is not the point of departure at present, confiscation pertains to the gross amount). However, I know many public prosecutors, inspectors and tax collectors, not to mention politicians and even the odd colleague, that are of the opinion that action is only undesirable if there is a risk that the tax levy or the confiscation will not be fully effected. From that point of view, coordination is informing each other!

Possible obstacles

Honestly speaking, I cannot imagine the tax authority obstructing the confiscation. The instruction that the tax authority is not to obstruct confiscation was also included in the previous regulations. Should the tax collector wait to collect an assessment that is based on criminal earnings, so that the payment thereof does not interfere with the payment of a confiscation order? That would be great, certainly if the tax collector would wait until after the confiscation is paid before going after his claim. In practice, I have not experienced any implementation of this instruction.

As was the case in the previous regulations, the new ones also state that it should be avoided that the suspect is confronted with a tax levy on the confiscated proceeds, after a confiscation measure has been imposed. In the past, similar wording always resulted in the coordination being interpreted such that nothing had to be done before the confiscation measure was in place. The problem, however, lies in the fact that coordination after is no longer relevant, by then the ‘harm’ has already been done.

The tax authority has in and around 5 years the time, from the year in which the criminal income is earned, to impose an assessment pertaining to that income. Even if the offence would be discovered soon after it was committed, the time that is – apparently – needed for completing a criminal investigation, going to trial and the completion of the financial investigation, is, in fact, always too long for establishing coordination afterwards.

Comparison with Section 74 of the Criminal Code

The clear parallel with Section 74 of the Criminal Code offers hope. The section is, after all, a clear ban on confiscation in tax cases. So, no retrospective coordination, no ineffective ‘obligation to undo,’ just a transparent provision that aims to prevent getting caught twice. Based on that parallel it can be made clear that the income taxes in combination with a confiscation do not go hand in hand. It is one or the other, not both!

Conclusion

While it is still unclear whether the court will alter its course based on this amended instruction, the current text in any case (again) offers more points of departure to advocate that ‘advance’ concurrence by way of coordination should have been avoided. The fight against ‘double confiscation’ can even be picked up with renewed energy in ongoing cases. That is a small ray of hope in an otherwise barely renewed, but assuring, new protocol.

[1] The hyperlink leads to AG IJzerman’s conclusion. The Supreme Court dismissed the relevant means based on Ground for Decision, Article 81.

Mr. B.J.G.L. Jaeger