The North Holland District Court ruled that a loss claimed with the application of the error theory was insufficiently substantiated.
The case concerns an NV that buys a property in 2011, which is split and converted in 2012 and then sold in part (the upper flats). In 2016, (the advisor of) the NV finds out that the balance sheet still shows a book value of over €270,000, which relates to the upper flats sold in 2012. The profit made on the sale of the upper flats in 2012 was therefore overstated in the corporate income tax return. The BV wishes to rectify this error in 2016 by still including a loss item of over €270,000.
Invoices destroyed
There is no dispute in the proceedings per se that such an adjustment can be made under the error doctrine in the last outstanding corporation tax return. However, the Inland Revenue argues that the SA does not sufficiently substantiate that costs were incurred in 2011 and 2012 relating to the property sold.
To this end, the SA provides no more than a reconstruction of the capitalisations and a number of general ledger accounts. No more can be deduced from the general ledger accounts than that amounts have been capitalised via journal entries.
The SA further submits that it is unable to produce the underlying invoices as supporting documents. These were in fact destroyed because the statutory retention period of seven years had expired. However, the Court disagreed with the NV's contention that the destruction of the invoices should have no evidentiary consequences for it. It is incumbent on the NV to keep the documents relevant to evidence.
A lesson from this ruling is therefore that it is wise to keep supporting documents relating to real estate (considerably) longer than during the statutory retention period of 7 years. Besides the situation we describe above, this is often also important in the context of VAT, for which a 10-year review period applies in respect of real estate.