Collective complaints procedure regarding rate of interest on tax to be extended

When is interest on tax due?

The interest on tax scheme basically means the Tax Inspector charging interest on tax if the issuing of a tax assessment with an amount to be paid by the taxpayer is delayed due to actions on the part of the taxpayer. Conversely, the Tax Inspector reimburses interest on tax if they take too long to determine a refund. The interest on tax scheme is therefore based on the so-called notion of default (verzuimgedachte).

The basic principle for return-based taxes is that the Tax Inspector makes a (provisional) assessment with an amount to be paid within eight weeks after a request to that effect has been submitted, or within thirteen weeks after a tax return has been filed. Taking into account a payment term of six weeks, calculation of interest on tax then ends after fourteen or nineteen weeks, provided that the (provisional) assessment is made in accordance with the request or the tax return.

In income tax and corporate income tax, however, interest calculation always starts six months after the end of the (financial) year. What’s more, no interest will be charged if a provisional assessment is based on a request received before the first day of the fifth month after the end of the tax period or if a tax return has been filed within the regular term. Once again, this is subject to the condition that the provisional assessment is made in accordance with the tax return.

Rate of interest on tax

The rate of interest on tax was initially intended to be in line with the statutory interest rate on non commercial transactions for all types of tax. However, in 2014 the legislator already decided to differentiate between corporate income tax and other taxes, as the estimated budgetary revenue from the scheme was not being achieved. From then on, the statutory interest rate on commercial transactions with a minimum of 8% applied to corporate income tax, while the statutory interest rate on non-commercial transactions with a minimum of 4% was used for other taxes.

A temporarily lower interest rate of only 0.01% applied during the corona crisis from June 2020 through 30 September 2020. In order to be able to respond more flexibly to changing circumstances, a decision was made to determine the rates of interest on tax by order in council as of 1 October 2020. In the period from 1 October 2020 through 31 December 2021, this was 4% for all taxes. As from 1 January 2022, the rates of interest on tax reverted to the original levels and a minimum rate of 8% once again applied to corporate income tax and withholding tax.

Since 1 January 2024, the ECB interest rate on main refinancing operations has been taken as a basis, increased by a surcharge. This surcharge was set at 5.5%, which is also the minimum rate for corporate income tax, withholding tax, minimum tax and a number of other taxes. For other levies, a 3% surcharge applies and a minimum rate of 4.5%. On the basis of this calculation, the high interest rate will reach 10% in 2024 and 9% in 2025, while the regular interest rate will be 7.5% (2024) and 6.5% (2025).

Court of North Netherlands judgment

On 7 November 2024, however, the Court of North Netherlands ruled that the distinction made (once again) since 1 January 2022 violates the principle of proportionality. In contrast to Acts of Parliament, subordinate legislation - including orders in council - may be tested against general principles of law. To do so, the Court applied an assessment framework developed by the Supreme Court, stating first and foremost that the Court should be cautious in assessing the interests weighed up by the legislature when introducing the regulation. However, the consequences of a regulation that are disadvantageous to taxpayers should not be disproportionate to the goal it is intended to serve. The question to be asked by the Court was whether the legislature could reasonably have arrived at the regulation in question.

Violation of the principle of proportionality

In the case under consideration, the Court answered that question in the negative. The arguments to justify alignment with the statutory interest rate on commercial transactions, with a minimum of 8%, for corporate income tax were considered weak. Moreover, the position that that corporate income tax payable is comparable to a trade receivable was dismissed. The Court further argued that comparison with the default interest scheme in the General Administrative Law Act (Algemene wet bestuursrecht) is also flawed and that the purpose of the distinction in interest rates remains unclear. The adverse consequences of the higher interest rate for corporate income taxpayers, on the other hand, are evident. The Court therefore concluded that the principle of proportionality had been violated and ruled that the high interest rate specified in Article 1(b) of the Interest on Tax Decree (Besluit belasting- en invorderingsrente) (text 2022) is nonbinding. The parties agreed that the interest on tax should be calculated at a rate of 4% and the Court reduced the interest charged accordingly.

Collective complaints procedure regarding high rate of interest on tax

The court judgment referred to above produced a host of notices of objection filed against the high rate of interest on tax, reason why the so-called collective complaints procedure was initiated on 15 February 2025. The Supreme Court will be requested to rule whether the high interest rate effectively violates higher legislation, such as the right to peaceful enjoyment of property (art. 1 FP ECHR), the prohibition of discrimination (art. 14 ECHR), the general principles of law or principles of proper administration (such as the principles of proportionality, equality, and due care, and the duty to give reasons).

Meanwhile, a leapfrogging appeal to the Supreme Court was lodged against this decision of the Court of North Netherlands, and other cases will likely be taken all the way to the highest Court of the Netherlands too. In the collective complaints procedure, all other notices of objection will be deferred. After the Supreme Court has ruled, the Tax Administration will issue a collective decision on the objections. This decision is not open to appeal, but if the Supreme Court rules in favour of taxpayers the Tax Inspector will reduce the charged interest on tax within six months of the collective decision.

Extension of collective complaints procedure

It has become clear by now that a considerable number of objections against interest on tax charged on (provisional) income tax assessments and some other levies have been filed as well. To efficiently handle these objections too, the State Secretary for Finance has issued a new designation with effect from 8 May 2025, in which objections to the regular rate of interest on tax applicable since 1 October 2020 are also designated as collective complaints. This rate of interest applies to a wide range of taxes, including income tax, wage tax, VAT, dividend tax and transfer tax.

Although the formulated questions of law are similar, no test case has yet been selected for the objections against the regular rate of interest. Following a selection, a decision on the objection will first have to be made, after which the questions of law can be submitted to the court. If the Supreme Court rules in favour of the taxpayers, the Tax Inspector will reduce the charged interest on tax within six months of the collective complaints procedure.

Filing objections is still necessary

Despite the collective complaints designation, it is still necessary to file an objection against the charged rate of interest on tax. Only objections submitted in due time that discuss one or more of the formulated questions of law will be included in the collective objection. If other grounds for objection are raised as well, the Tax Inspector will decide on them individually. Objections not submitted in due time will be declared inadmissible. Insofar as interest on tax has been charged on provisional corporate income tax assessments, a request for review will also have to be submitted first. Next, objections must be filed against any rejection if access to the collective complaints procedure is to be gained.

Sources:

• Court of North Netherlands 7 November 2024, 23/5244, ECLI:NL:RBNNE:2024:1422
• Decree of 7 February 2025, No 2025-3886, Government Gazette 2025, 5793
• Decree of 16 April 2025, no. 2025-96279, Government Gazette 2025