Breakthrough; corporate tax interest is unreasonably high, here’s what you can do.
On 7 November 2024, the North Netherlands Court ruled that a tax interest rate of 8 per cent on a 2021 assessment is not reasonable. This landmark ruling opens up new opportunities for taxpayers who have faced high corporate tax interest rates. What does this ruling mean specifically for you, and what steps can you take now?
What is tax interest?
Tax interest is charged by the Tax Authorities when there is a delay in imposing a tax assessment. It is designed to encourage taxpayers to file their returns on time and prevent the Tax Administration from inadvertently acting as a savings account.
Interest is calculated from 1 July according to the year for which tax is due. Since 2022, tax interest has been set at 8 per cent for corporate income tax, and in 2024 it has even increased to 10 per cent. This high rate is based on the statutory commercial interest rate, but the court has now ruled that this link is not tenable.
Why is the tax rate too high?
The court has ruled that the 8 per cent rate violates the principle of proportionality. The principle of proportionality holds the measures taken by the government must be in reasonable proportion to the aim the government is pursuing with that measure. The aim of the measure is for taxpayers to file their tax returns. And so now the court has decided that the application of an 8 per cent tax interest rate leads to unnecessary adverse effects on taxpayers.
The court’s main considerations for this were:
Trade interest is not comparable: Tax interest is linked to trade interest, but taxation is not a business transaction between private parties. As a result, this comparison is not justified.
Unequal treatment: Tax interest is higher than that applicable to other taxes, such as income tax, for no good reason.
Default interest is different: Tax interest should not be compared to default interest, which is charged if an assessment is not paid on time. Instead, tax interest refers to situations where a final assessment has not yet been imposed.
Reduction to 4 per cent
The court ruled that tax interest in this case should be reduced to 4 per cent. This rate corresponds to the tax interest rate applicable to other taxes, such as income tax, until July 2023. This ensures fairer treatment of taxpayers.
Opportunities for action
Have you been charged tax interest? If so, you may be able to do the following:
Final or additional tax assessment
File an objection within six weeks of receiving the final or additional tax assessment imposed after 2022 if you believe the tax interest charged is unreasonable.
Provisional assessment
If tax interest has been calculated on a provisional assessment, you can file a request to review the interest within six weeks of the final assessment. Therefore, if tax interest has been charged on the provisional assessment, in addition to objecting to the final assessment, a request for review for tax interest on the provisional assessment must also be filed.
How to avoid tax interest?
To avoid incurring high tax interest in the future, you can do the following:
File a tax return on time: If your tax return is filed on time and the assessment is determined without amendments, no tax interest will be charged.
Apply for a provisional assessment: By applying for a provisional assessment in advance and making an accurate estimate of your taxable profit, you will avoid paying interest on an unexpectedly high tax assessment afterwards.
Check your estimates: Make sure your provisional assessment matches the final assessment. This will avoid unnecessary costs.
Need help?
Do you have questions about the implications of this ruling or would you like advice on how to limit tax interest? Please contact our tax advisor David Harreman. He will be happy to help you arrange your tax affairs efficiently and avoid unnecessary costs.
