A director and major shareholder claims that his private limited company is incurring structural losses and that, therefore, no customary salary needs to be taken into account. The Amsterdam Court of Appeal does not accept this. The corporation tax returns show, year after year, expenses that are almost exactly equal to turnover. Without further explanation, this is implausible. Furthermore, bank balances and equity are missing from the balance sheets, even though the private limited company does have a bank account.
No payroll tax return
The private limited company lets out property. The director and majority shareholder is the sole shareholder and director. He carries out work for the company, including entering into tenancy and sale agreements. The private limited company has not registered as a withholding agent and has not submitted any payroll tax returns. The director and major shareholder does receive a salary via a payroll agency, but these salary costs have not been passed on to the private limited company. The tax inspector has issued a supplementary assessment of €13,210, based on a notional salary of €28,125 for 2017 and 2018 combined. In doing so, the tax inspector applies a part-time factor of 50%.
Claim of structural loss
The private limited company argues that it did not make a profit in the years in question and that, on that basis, no customary salary needs to be taken into account. According to the company, turnover has fluctuated around €17,000 for years. The tax inspector disputes this. The corporation tax returns for 2019 to 2024 show that turnover is significantly higher: between €25,000 and €66,000 per year.
Unusual cost patterns
The court ruled that the private limited company had not demonstrated that it was in a situation of prolonged loss-making. In the corporation tax returns for the years 2019 to 2024 inclusive, the costs are in each case virtually equal to the turnover. In the absence of adequate explanation from the private limited company, this is, to say the least, implausible. Furthermore, the balance sheets do not show any bank balances, whilst it is established that the private limited company does in fact have a bank account. Equity is also missing from the balance sheets. The private limited company has not provided an adequate explanation for these findings.
Corporate tax inspector treated the usual wage as an expense
The payroll tax inspector spoke on the telephone with the corporation tax inspector. The latter stated that, in the corporation tax assessments for 2019, 2020 and 2021, the expenses claimed by the private limited company lacked sufficient supporting evidence. The inspector has therefore treated a standard salary as an expense in each of those years. On that basis, a structural loss for those years has not been established.
Explain the circumstances of the loss
This ruling shows that invoking a situation of structural loss in order to reduce the customary salary requires sound justification. Tax returns in which the costs are exactly the same as the turnover every time raise questions. Incomplete balance sheets reinforce this mistrust.