Defence against unlawful procedure to remove doubt may be well worth it

The SAC recently again dealt with the question of the (un)lawfulness of initiating a procedure to remove doubt and a subsequent tax inspection (file No. 10 Afs 22/2016). The case involved a situation where a taxpayer in several subsequent tax periods had reported excess VAT deductions, which became the target of the tax administrator’s inquiries. The tax administrator retained the excess deductions and issued a call to remove doubts as regards taxable supplies received. The entity filed a complaint against this and the case thus appeared before the court.

The court emphasised that a precondition for issuing the call to remove doubt is a tax administrator’s doubt so specific that it can be communicated in the call in a manner that allows the taxpayer to respond adequately. The SAC also suggested that the sole existence of an excess deduction is not a relevant reason for issuing a call to remove doubt.

In this respect, the SAC previously held that a taxpayer’s complaint as to the non-specificity and incomprehensibility of the call to remove doubt was a relevant and objective response, and that the tax administrator had to attend to it. If the tax administrator fails to review the complaint, any further dialog between the parties has been thwarted and the procedure to remove doubt cannot be effectively carried out. Any tax inspection initiated on these grounds would then be viewed by the court as unlawfully initiated.

To a certain extent, the conclusions presented in the SAC’s rulings limit the arbitrariness of the tax administration’s actions. They clarify the taxpayers’ options in defending themselves against an unlawfully initiated procedure to eliminate doubt and the retention of excess deductions. Hence we may hope for less tax administrators’ inquiries and tax inspections based solely on reported excess VAT deductions.