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Email expedition

Peter Kavelaars

A frustration for many tax inspectors: a lack of knowledge about taxpayers due to insufficient information about the taxpayer. In recent years, there has been a significant improvement in this regard internationally, as both the EU and the OECD have established regulations requiring tax authorities to engage in cross border automatic exchange of information. The EU has addressed this in the Administrative Assistance Directive, which is regularly expanded through so-called DACs. I have previously discussed these DACs, for example, regarding the obligation for platforms like Airbnb to provide data to the tax authorities, who then pass on this information to foreign tax authorities as necessary. Soon, there will also be an obligation for crypto custodians to provide information. Outside the EU, a similar framework is established based on the OECD's Common Reporting Standard. This requirement also applies to the Caribbean parts of the Kingdom. For Curaçao, there is currently a tricky situation as the OECD deemed that the country does not sufficiently meet this obligation and would end up back on the infamous grey list. However, it seems that Curaçao is managing to turn the tide through timely adjustments.

Despite this automatic international exchange of information, the Tax Authority still faces challenges. In many countries, it is a significant problem to process the large amount of data received and to verify it with taxpayers. Until this is adequately addressed, the impact remains limited. There are still challenges ahead.

In addition to foreign information, the Tax Authority also needs domestic information. In most countries, this is partly addressed through mandatory reporting by financial institutions and employers on various financial data, such as bank accounts, savings, interest, stock ownership, dividends, and of course, salaries subject to withholding tax and premiums. However, there is still a "black hole." A recent example in the Netherlands was the taxation of art owned by individuals. For them, art is taxed in box 3 of income tax if it is an investment. If art is not considered an investment, it is exempt from tax. Apart from determining when art is considered an investment, there is also the question of how the tax authority knows if someone owns art. Taxpayers are not obliged to report this, and the tax authority has no information on it. As long as the tax authority remains uninformed, art remains effectively untaxed. The same currently applies to cryptocurrencies. The only solution is to include an explicit question about this in the tax return, which must be answered truthfully. As for art, whether it is considered an investment or not remains unanswered; the answer is somewhat determined by where the art is located: on the wall (untaxed art) or in storage (taxable investment). This is not very efficient.

Recently, there was a legal case concerning information disclosure, specifically regarding email files of a businesswoman. The businesswoman operated a tax advisory firm and apparently advised clients in Curaçao among others. The Tax Authority initiated an investigation into the businesswoman's revenue reporting and requested various information. The tax authority has broad legal powers in this regard: all information that may be relevant to the tax position must be provided. This provision is included not only in Dutch law but also in Curaçao law. Based on this provision, it is almost impossible to withhold information. In this context, the tax authority requested the email correspondence with Curaçao, which the tax advisor refused to provide. This led to a legal proceeding. The advisor invoked, among other things, the privilege against self-incrimination. However, this cannot apply because a tax advisor has no statutory privilege against self-incrimination. However, the Netherlands does recognize an informal privilege against self-incrimination: in short, no information about tax advice needs to be provided. However, if it concerns information about, for example, clients' tax returns, that must be provided. Even concerning factual matters in advice, they should be provided. However, the Supreme Court ruled in 2005 that since tax advice consists of facts and advice, the so-called fair play principle prohibits the provision of advice. The tax advisor invoked this. However, that was not relevant: it was not about the advice; the tax authority wanted to verify the advisor's revenue itself. The (informal) privilege against self-incrimination does not apply in this case. In the end, the Supreme Court ruled against the appellant: she had to provide all email correspondence. There was also no fishing expedition involved. However, the tax authority may now potentially gain insight into advisory services in Curaçao. This should not be the case. However, in principle, the tax authority cannot use this information based on the above-mentioned case law. Whether this is the case is not evident from the judgment. But if the information does concern a Curaçao construction, it is likely that the tax authority will try to utilize it. To be continued perhaps. It is clear, however, that the tax authority has broad powers to request information. This is also appropriate.


Peter Kavelaars is Professor of Tax Economics at Erasmus University Rotterdam and of counsel at Deloitte Dutch Caribbean.

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