Arnhem-Leeuwarden Court of Appeal ruled that income tax was rightly recovered, despite the fact that the return showed a substantial jump in assets.
Power jump
The capital leap was caused by the liquidation distribution paid by a Ltd (under Gibraltar law) to the taxpayer. This liquidation distribution is subject to income tax in box 2 (substantial interest levy) in the Netherlands. Because the distribution had not been included in the tax return, the assessment was imposed without this box 2 levy. When the tax authorities find out, an additional assessment is imposed for the wrongly not levied tax.
New fact
The taxpayer takes the view that this assessment should be annulled on formal grounds, because it concerns a fact that could have been known to the tax authorities. There would be no new fact required for post-clearance recovery.
Indeed, the income tax return showed a sharp increase in bank balances included in the assets that form the basis for determining income from savings and investments (box 3). That increase should have prompted the Inland Revenue to investigate the cause of the asset jump and it would then have emerged that it was caused by the dividend not included in the tax return. Because the Tax Administration did not investigate this, the new fact required for post-tax recovery did not arise.
The court considered that, in principle, the tax authorities may assume that a submitted return is correct. Only in case of reasonable doubt should further investigation be carried out. If there is a non-negligible possibility that the information contained in the return is correct, no further investigation is required. According to Court of Appeal, in this case, it was not unlikely that the return was correct. The court therefore upheld the additional assessment.