VAT: Do you know you should have known?
In their data boxes, selected VAT payers have recently received a notice whose purpose at first sight is not entirely clear. In the Notice on Taking Adequate Measures the tax administrator lists recommended preventive measures.
Taxpayers already have gotten used to receiving frequent notices from tax administrators requesting them to change, add or confirm data in connection with VAT ledger statements. Now the notices seem to have taken on yet another form and purpose: thanks to VAT ledger statements and the declared data, tax administrators now have gained perfect knowledge of individual taxpayers’ transactions; and, obviously, are able to identify potential risks of VAT fraud even before the VAT payers themselves can.
At least this is what the notice implies. In the notice, the tax administrator may for instance inform you that they have taken notice of your transaction with a supplier engaged in the provision of labour, regardless of the form or manner of the legal relationship. The tax administrator is of the opinion that entering into transactions with entities carrying our business in this field may lead to involvement in VAT fraud, namely where the entity does not sufficiently collaborate with the tax administrator or proceeds in a non-standard manner.
In this regard, the notice contains a list of non-standard aspects that while not usually illegal themselves may in aggregate indicate that the transaction is affected by VAT fraud. Notably, this is the first time ever that the tax administrator has officially released clues that may give taxpayers some idea on how tax administrators assess risky transactions.
Furthermore, the tax administrator calls upon you to take all relevant preventative measures to avoid the risk of liability for unpaid tax. The taxable supply recipient is liable for tax unpaid by the supplier, among other reasons, in cases where they knew or should have known that the tax would intentionally not be paid by the supplier. According to the tax administrator, simply receiving the notice means that you knew or could and should have known of the risk. This indicates that the tax administrator is changing their strategy and building a position for a possible tax dispute.
An option here is securing the tax by the supply recipient, as mentioned in the notice. This means that the supply recipient would pay the tax directly to the tax authority’s account, not to the supplier’s bank account. In such a case, we suggest concluding a written agreement with the supplier to this effect.
We cannot but recommend that should you receive the notice, consider securing the tax along with implementing the relevant preventative measures.