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Formal Hassle

Peter Kavelaars

Just like in all areas of law, tax law is steeped in strict formal rules. Failure to adhere to these rules can lead to rather unpleasant consequences. We need only think of the timely submission of a tax return. While the tax authorities typically send a reminder for a late submission of an income tax return, if the return is delayed too long or not submitted at all, it can result in a reversal of the burden of proof and even a fine. Rules are even stricter when it comes to taxes like payroll tax: a late submission or payment can directly lead to a penalty. Another strict tax rule concerns filing an objection: submitting an objection just one minute late results in what is called inadmissibility. In other words, the tax inspector can practically throw the objection in the trash without any issue. Fortunately, that's not entirely the case because even on an inadmissible objection, a decision must be made – namely, that it is inadmissible. Moreover, in principle, the tax inspector must also consider whether the taxpayer might actually be correct in substance. Under certain conditions, if that is the case, the taxpayer may still prevail.

Recently, the Supreme Court has addressed several procedural issues concerning a taxpayer from Curaçao who was contesting a tax assessment for profit tax that included a penalty for omission. A penalty for omission is usually imposed if the taxpayer has made an error in the tax filing process, such as not filing or filing late. The taxpayer contested both the assessment and the penalty. The first question in the proceedings before the court – initially the Court – was whether the assessment and the penalty were imposed in a timely manner. The tax authority must do so within a certain period, or else it forfeits its rights. The Curaçao Court found that the tax authority was late and therefore did not address the substantive objections of the taxpayer. On appeal, the Common Court disagreed: the tax authority was indeed on time. However, the Court did not address the substantive dispute; instead, it referred the case back to the Court to determine whether the taxpayer was substantively correct in his appeal. The taxpayer disagreed with this and appealed to the Supreme Court. The Supreme Court has recently ruled on this matter. Firstly, the Supreme Court reprimands the Court. The Court should not have referred the case back to the Court. According to the National Ordinance on Appeal in Tax Matters, the Court may only refer back if there is incompetence or inadmissibility. Neither was the case, so the Court should have decided on the substantive dispute itself. The irony is that the Supreme Court does refer the case back to the Court to be dealt with, which is actually correct.

However, the formal hassle in this procedure is not yet over. Another issue raised is that the taxpayer believed that the so-called reasonable time for the proceedings before the court had been exceeded and therefore he is entitled to a so-called non-material damage compensation, usually abbreviated to NMC. This right stems primarily from the European Convention on Human Rights (ECHR). Here again, a distinction must be made between the tax due and the penalty. Regarding the tax due, the Supreme Court holds that there can be no appeal to NMC in a tax procedure because the tax legislation of Curaçao does not provide for it. The Supreme Court refers to the civil court for this. As for the penalty and the exceeding of the reasonable time, it is a bit different: a penalty is essentially a punishment, and punishment must also take place within a reasonable time according to the ECHR. However, the Court overlooked this, which is incorrect. The tax legislation of Curaçao also does not provide a basis for this, nor does Dutch legislation. However, the Supreme Court itself provided for this a few years ago. Subsequently, the Supreme Court only rules on a too lengthy cassation procedure, which in this case leads to a reduction of the penalty by 10%. For the assessment of whether the procedure prior to the cassation procedure – thus before the Court and the Common Court – lasted too long, the Common Court must make an assessment. As I mentioned before, the case has been referred back to the Common Court, and it must assess this point. But the taxpayer is still not done: if the Common Court determines that the reasonable time has been exceeded and thus the taxpayer is entitled to compensation, the Common Court, according to the Supreme Court, cannot determine that compensation itself. The taxpayer must go to the civil court with the Common Court's decision in hand.

The Tax Authority is often said to not make things any more enjoyable or easier, but it seems that the judiciary is not much different. This procedure reveals a lot of fiscal hassle with undoubtedly high procedural costs. It does not encourage taxpayers to assert their rights. That is worrying. In my opinion, this could have been made a bit simpler. It is desirable for the Curaçao legislature to come up with regulations in this regard.

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

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