North Netherlands court in a recent ruling ruled that the tax interest payable on a corporate income tax (Vpb) assessment violates the principle of proportionality. The Court calculated the interest not on the basis of the rate of 8%, but on the basis of 4%.
Tax interest
Tax interest is due when you have to pay tax on a provisional or final assessment. Interest only starts to accrue after 6 months have passed after the tax year. Therefore, if the tax year is equal to the calendar year, tax interest starts running on 1 July. Interest on the Vpb due for the calendar year 2023 will be calculated from 1 July 2024.
The tax interest rate for corporate tax is as high as 10% (in the years 2022 and 2023, this rate was the 8% mentioned above). For taxes other than corporate income tax, this rate is considerably lower: 7.5% (in the period from 1 July 2023 to 31 December 2023: 6%; from 1 January 2022 to 30 June 2023: 4%).
Principle of proportionality
The court decides that the high rate of tax interest for Vpb violates the principle of proportionality and declares the Tax and Recovery Interest Decree non-binding on this point. According to the court, the regulator could not reasonably have arrived at this interest rate. The interest rate is then set at 4% because the tax authorities and taxpayer indicated at the hearing that if taxpayer is proved right, they are of the opinion that tax interest should be 4%.
Prevention is better than cure
Even with a rate of 4%, tax interest can quickly add up. It therefore remains wise in many cases to ensure that as little tax interest as possible is due. This can be done by timely requesting the tax authorities to impose a (further) provisional assessment. This can be done, if the financial year equals the calendar year, until 30 April of the year following the tax year at the latest.
However, you cannot always completely avoid running into tax interest. Profits do not always allow themselves to be estimated properly. And sometimes you run into a discussion with the tax authorities, which leads to a correction of a submitted tax return. If this results in additional Vpb to be paid, tax interest is due.
Securing rights
If tax interest is nevertheless charged, it is prudent, partly as a result of the Court's ruling, to object to it in order to preserve rights. It is obvious that the Tax Administration will lodge an appeal (or perhaps jump to judgment) against the Court's ruling. Only if you have safeguarded your rights in time will you be able to appeal to the Court and/or Supreme Court in due course.