Tax evasion in the Netherlands

Tax evasion is a global issue. Zooming in on the Netherlands, fighting tax evasion became a top priority in recent years due to our country’s reputation as a “tax haven”. Therefore, the Dutch government made it a top priority and a task force was put into place to address this matter. 

Tax filings – the ground rules

Under the General State Taxes Act (in Dutch, “de Algemene Wet op de Rijksbelastingen”), taxpayers are required to file their tax returns “firm, complete, and unreserved”.

Whilst tax returns can on occasion be accidentally incomplete or incorrect, this is not considered tax evasion. Instead, such cases are treated as defaults and generally result in less severe penalties. However, deliberate non-compliance with tax laws to reduce tax payments constitutes tax evasion, subject to criminal penalties and classified as fraud.

Gross negligence, defined as culpable carelessness or negligence bordering on intent, is also considered a form of tax evasion and can result in delinquency fines.

Appearances of tax evasion

Tax evasion generally manifests in two ways:

1. Non-compliance with the letter of the law; and 
2. Non-compliance with the purpose and scope of the law (known as “fraus legis”).

Non-compliance with the letter of the law is the most straightforward form of tax evasion. For example, failing to disclose a foreign bank account on a personal income tax return is a clear violation.

Fraus legis refers to schemes that lack any purpose other than to reduce tax liability. A common example is setting up a “letterbox company” to avoid withholding taxes on dividends or royalties. While fraus legis can be subjective, it is often clear when the construction lacks rational economic purpose.

How tax evasion comes to light and what to expect

Tax evasion can come to light in various ways, such as through information exchanged between foreign tax authorities, tax audits, investigations by the Dutch fiscal intelligence unit, or whistleblowers. Third-party investigations or journalistic efforts can also help uncover tax evasion.

If tax evasion is detected, the Dutch tax authorities will conduct a thorough investigation, leading to a determination of the evaded taxes. A tax assessment will be issued, along with interest and fines. Fines can be as high as 300% of the evaded taxes. The amount varies based on the circumstances and facts of each case.

Amendments of tax filings and voluntary disclosure

If the Dutch tax authorities have not yet discovered the evasion, it is possible to file an amended tax return or use a voluntary disclosure form.

Not all filings qualify as voluntary disclosures. To be considered as such, the taxpayer must know (or reasonably should know) that the Dutch tax authorities suspect underreporting of income, inheritance, or assets. In cases of qualifying voluntary disclosure, fines can be reduced, potentially to zero.

Value-added tax is a field in which voluntary disclosure is common practice, namely the supplementary VAT return. In the Netherlands, you must file a supplementary VAT return if you know that the difference between the payable/receivable on the VAT return and the actual payable is > EUR 1,000. This supplementary VAT return should be filed as soon as it is known that the wrong amount of VAT has been reported. 

In relatively recent history, voluntary disclosure of foreign bank accounts was a hot topic, as fines on these types of disclosure were temporarily reduced. A few years ago, these lower fines were increased back to the normal level. 

Tax evasion overseen by foreigners

As mentioned, gross negligence is also considered an offence and therefore could be considered tax evasion. Therefore, in the international context, it is plausible that, if for example employees are working from the Netherlands as representatives of the company, the levy of payroll tax and even corporate income tax are overlooked. Also, the consequences for social security premiums of cross-border commuters can be overlooked.

Even in situations when there is in principle no intent, however, it is considered non-compliance when the taxpayer had the obligation to know better; and therefore, non-compliance could potentially be considered gross negligence. 

Obligations of advisors 

Based on the Dutch anti-money laundering legislation, a tax advisor has two options after an introductory meeting with a prospective client:

1. Make the prospect a client and help them come clean with the Dutch tax authorities before providing other services; or
2.  If the prospect is not willing to come clean with the Dutch tax authorities, refuse to provide them with any services. 

If there is a client relationship (in any form) and it turns out there has been undeclared income or wealth, or there is tax evasion in any other form, a discussion with the client is necessary. If the client intends to voluntary disclose and come clean with the tax authorities there is no issue. However, if there is an issue, it is necessary to notify the financial intelligence unit. Whether the client relationship can stay in place is open for discussion, but in general, this relationship must be ended. 

Long story short

Tax evasion, intentional or not, leads to a whole lot of trouble with the Dutch tax authorities. In order to prevent endless discussions and legal proceedings, it is advisable to consult a local tax advisor if there are any cross-border transactions.

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Carijn van Helvoirt–Franssen completed her tax master’s degree in 2014 and has worked in the (international) tax advisory practice for over 10 years. In 2020, she joined EJP and in daily practice, she focuses on (international) tax advice, M&A for larger SME companies in the Netherlands and abroad.