… than to cure. So goes the saying. And when it comes to tax interest, prevention means applying to the Tax and Customs Administration for a provisional assessment in good time. Once you’ve caught the “illness” of tax interest, it’s usually incurable: you’ll almost never be able to avoid paying the tax interest.
Provisional assessment
As a result of your application, the Tax and Customs Administration will issue a provisional tax assessment. In most cases, the amount of the assessment will correspond to your request. Naturally, you must actually pay the tax liability set out in the assessment. If it subsequently transpires that the assessment was too high, you will be refunded the overpaid tax.
Naturally, you can only apply for a provisional assessment for taxes for which you receive a tax assessment, such as income tax, corporation tax and inheritance tax. After all, you must pay VAT and payroll tax immediately following the submission of your tax return.
Tax interest
Tax interest is calculated from the day following the date on which six months have elapsed since the end of the tax return period. Tax interest on a 2017 corporation tax assessment (where the financial year ends on 31 December 2017) is calculated with effect from 1 July 2018. The interest period ends on the last day of the payment deadline for the (provisional) tax assessment. Tax assessments issued after the tax year to which they relate must be paid within 6 weeks of their date of issue.
Tax interest rate
The tax interest rate is certainly nothing to be sniffed at. On an annual basis, you currently pay income tax on 4% and on corporation tax 8%. These are the minimum rates. Such rates are well worth it to avoid having to pay tax interest. Unless, that is, you manage to achieve a return higher than 4%/8% on your investments.
If you receive a tax refund, the Tax and Customs Administration almost never pays tax interest on it. This unfair arrangement was devised to prevent citizens and business owners from “saving” with the Tax and Customs Administration.
Date
When issuing (provisional) tax assessments, the Tax and Customs Administration is not required to take into account the fact that this may result in tax interest being payable. This has been ruled by the Supreme Court confirmed in a case in which a private limited company (BV) had requested a provisional corporation tax assessment. That request related to the tax year 2013 and was submitted on 19 June 2014. On 28 June 2014, the Tax and Customs Administration announced that a provisional assessment would be issued. The assessment was eventually dated 5 July 2014.
The Tax and Customs Administration assessed the private limited company € 15.509 in tax interest. A substantial sum. However, this is partly due to the high amount of corporation tax. The private limited company had, in fact, requested that the taxable amount be increased by €5,885,000. The corporation tax on this amount comes to €1,471,250 (rate: 25%).
Tax interest for 2013 is calculated with effect from 1 July 2014. The interest period ends 6 weeks after 5 July 2014 (i.e. on 16 August 2014). The interest period therefore amounts to 46 days: 16 days in August, and a full month (July) is treated as 30 days for the purposes of calculating interest (the whole year is treated as 360 days). The tax interest rate for corporation tax during that period was 8.25%. The annual interest thus amounts to 8.25% * €1,471,250 = €121,378. The tax interest then amounts to: (46/360) * €121,378 = €15,509.
If the tax assessment, which the Tax and Customs Administration entered into its computer system on 28 June 2014, had been dated before 1 July 2014, the tax interest would have amounted to €0. However, the Tax and Customs Administration’s policy is to date (provisional) tax assessments slightly later than the date on which those assessments were (presumably) dispatched. This ensures that the taxpayer can always make use of the full six-week period for lodging an objection.
Action
Are your profits (or other income) higher than expected? Has your private limited company paid out a dividend? Have you bought out your self-administered pension? Are your tax deductions lower than in previous years?
These are all signs that you may have overpaid tax on your income tax return. Make sure you don’t fall into the trap of tax interest. VWGNijhof We’d be happy to work it out for you. And, of course, we can apply for the provisional tax assessment on your behalf.
Inheritance tax
Following a death, settling the inheritance tax return is not always the top priority. This is entirely understandable, but here too the proverbial spectre of tax interest looms large. Rate: 4% on an annual basis. Tax interest is calculated on inheritance tax due from the day after eight months have elapsed since the death. The interest period runs until the final payment date of the (provisional) assessment.
As the Tax and Customs Administration’s new computer system for inheritance tax is not yet fully operational, tax interest will not be charged for the time being. PLEASE NOTE: this approval is temporary and applies only where the death took place on or after 1 January 2017.