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ECJ Allows Extended Period For Unpaid Tax To Be Collected From Another Member State,
by Ulrika Lomas, for LawAndTax-News.com, Brussels
Friday, June 19, 2009
An extended recovery period where taxable assets which have been concealed
from the tax authorities are held in another member state is in accordance with
European law, according to the European Court of Justice (ECJ).
The ECJ said in the case X and E.H.A. Passenheim-van Schoot v Staatssecretaris
van Financiën that in so far as the tax authorities have no evidence
of the existence of such assets, an extended recovery period does not go beyond
what is necessary to guarantee the effectiveness of fiscal supervision and to
prevent tax evasion.
In October 2000 the Special Taxation Inspectorate (Belgium) spontaneously
forwarded to the Netherlands tax authorities information on financial accounts
held in the names of Netherlands residents at Kredietbank Luxembourg (KB-Lux),
a bank established in Luxembourg. In 2002, after examination of that information,
X, who had been the holder of such an account since 1993, received an additional
assessment containing adjustments in regard to wealth tax and income tax for
the tax years from 1993 to 2001. A fine amounting to 50% of the additional amounts
sought was also imposed on him.
After her husband died, Mrs Passenheim-van Schoot made a full disclosure in
January 2003, on her own initiative, to the Netherlands tax authorities of balances
held by herself and her late husband at a bank established in Germany. Until
that time those balances had never been included in their tax declarations.
At Mrs Passenheim-van Schoot’s request, the Inspector granted her the
benefit of the ‘repentance’ scheme and imposed no fine. However,
he sent her additional assessments concerning the tax years from 1993 to 1997.
X and Mrs Passenheim-van Schoot challenged the tax authorities’ decisions.
In their view, the extended recovery period laid down in the Netherlands legislation
for taxable items held abroad was contrary to Community law. In that context,
the Hoge Raad der Nederlanden (Supreme Court of the Netherlands), before which
both cases had come on final appeal, asked the Court of Justice, in particular,
whether Community law over-rides the Netherlands legislation under which, in
cases where savings balances and income accruing from them are concealed from
the tax authorities, the recovery period is five years if the savings balances
are held in the Netherlands but is extended to 12 years if they are held in
another member state.
While the court observed that such legislation constitutes a restriction both
of the freedom to provide services and of the free movement of capital, which
is prohibited, in principle, by the EC Treaty, it pointed out that the need
to guarantee the effectiveness of fiscal supervision and the prevention of tax
evasion “constitute overriding requirements of general interest capable
of justifying such a restriction.”
A summary of the judgment stated that:
“Although the extension of a recovery period does not, as such, strengthen
the powers of investigation available to the tax authorities, it none the less
enables them, in the event of discovery of taxable items held in another member
state of which they had no knowledge, to initiate an investigation and, where
it emerges that those items have not been subject to tax, or that too little
tax has been levied, to issue an additional assessment.”
“The Court holds that it must therefore be accepted that the legislation
at issue contributes to the effectiveness of fiscal supervision and to the prevention
of tax evasion.”
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