Be aware, not all infraction penalties (‘vergrijpboetes’) are the same

Have you ever experienced this feeling of injustice? A notice for an additional tax assessment (‘voornemen tot naheffen/navorderen’) lands in your mailbox because you accidentally made errors in your tax return years ago. In addition to an enormous tax bill, the tax inspector also wants to impose an infraction penalty (‘vergrijpboete’). This penalty is hefty—it can be up to 300% of the owed tax amount. You then lodge an objection, explain everything to the inspector, but he rejects your objection. What now? Is it still worthwhile to challenge the infraction penalty in court? My answer is clear: Yes! In a case where an individual accidentally incorrectly reported their foreign assets to the Tax authorities, the court reduced the penalty from € 172.500 to € 50.000 because the amount of the penalty was not proportional to the seriousness of the infraction.[1] In this blog,
I will explain when you too can avoid/reduce such a penalty.

How is the infraction penalty established?

First, let’s discuss how the infraction penalty is established. There are also default penalties (‘verzuimboetes’), for ‘lighter’ offenses such as submitting a tax return too late. For more information about default penalties, I refer you to the blog of my colleague, mr. Lisa van Esdonk-Bongaarts (Dutch).

An infraction penalty can be imposed by the inspector if someone:

• provides incorrect or incomplete information;
• files a tax return incorrectly or not at all;
• causes tax assessments to be set too low (for example by not disclosing all assets); and
• fails to pay declaration taxes on time (such as VAT or payroll taxes).

If the inspector identifies any of the above situations, he must then determine whether there was intent (‘opzet’) or gross negligence (‘grove schuld’) before imposing and calculating a penalty. For example, if someone received advice from a tax consultant, ignored it, and submitted an incorrect tax return, that is considered intent. Actions of intent carry a heavier penalty than actions of gross negligence. This is relevant for example when someone has properties abroad and mistakenly thinks those should be taxed abroad rather than in the Netherlands. It is clear they should have sought advice. Failing to do so and submitting an incorrect return results in gross negligence. For actions of intent, a penalty of 50% of the owed tax amount applies; for actions of gross negligence, it is 25%. When the owed tax amount is made up of tax on savings and investments (‘box 3-belasting’), the penalties will be raised to 150% for actions of intent and 75% for actions of gross negligence.

The inspector then looks at aggravating and mitigating circumstances (‘strafverzwarende en -verminderende omstandigheden’) that can respectively increase or decrease the aforementioned penalties, as specified in the law and in the guidelines of the Tax authorities. For example, mitigating circumstances might include cooperating with the inspector’s questions about incorrectly submitted tax returns when you aren’t required to do so. According to internal documents from the Tax authorities, the penalty in such a case can be reduced to 135% for tax on savings and investments and 45% for other cases. An example of an aggravating circumstance is using a bank account in a country with bank secrecy laws (such as Switzerland). In this situation, the penalty can be increased to 225% for tax on savings and investments and 75% for other cases.

However, the way the penalty is calculated by the inspector remains somewhat uncertain. For many mitigating and aggravating circumstances, no fixed percentages are mentioned in the guidelines or internal documents. The only guarantee is that the penalty can never exceed the legal maximum: 300% of the owed tax amount for tax on savings and investments, and 100% of the owed tax amount in other cases. Therefore, it is crucial to consult with your lawyer to determine whether there is intent or gross negligence and to identify which mitigating and aggravating factors might be relevant.

What happened in this case?

The taxpayer had not reported his foreign assets for seven years. He voluntarily declared those assets to the Tax authorities before any inquiries were made and cooperated fully with the investigation. The inspector determined that the earlier tax assessments (which did not include the foreign assets) were too low due to the taxpayer’s gross negligence. Consequently, the inspector issued additional tax assessments totalling € 287.000 and infraction penalties totalling € 172.500 (60% of the owed tax amount). The calculation of the penalty went as follows:

1. There is gross negligence, and the owed tax amount is made up of tax on savings and investments, resulting in a penalty set at 75%.
2. The taxpayer declares the foreign assets before the Tax Authority asks any questions, which reduces the penalty to 60%.

The court then ruled that the seriousness of the infraction (failing to declare foreign assets which led to tax assessments that were too low) was not proportional to the total amount of penalties imposed on the taxpayer (€ 172.500). The court took into account that the taxpayer fully cooperated with the investigation and was transparent about his situation. This identified disproportionality led the court to reduce the penalty from € 172.500 to € 50.000. Thus, the penalty percentage dropped from 60% to 17%. This ruling clarifies that, similar to criminal judges, tax judges consider all circumstances of the case when determining penalties, largely disregarding the policy guidelines that bind the inspector.

What does this mean for you?

Assess what the possible mitigating and aggravating factors in your case might be. If, in the end, the mitigating circumstances outweigh the aggravating ones, it can likely be substantiated that the severity of your infraction does not match the penalty. The case described above illustrates that a substantial reduction in the imposed penalty is attainable. The lawyers at Jaeger are ready to assist you with this.ECLI:NL:RBGEL:2024:7965, rechtspraak.nl (online).

[1] District Court of Gelderland 15 november 2024, nr. AWB 23_4678, ECLI:NL: RBGEL:2024:7965, rechtspraak.nl (online).

This article is translated from Dutch to English with ChatGTP and may not be 100% accurate. Although we try to reproduce the original Dutch text as accurately as possible, no rights can be derived from the content of machine-translated texts.