Trust and tax is a combination often referred to by US and British tax payers. Then we explain that the concept of Trust is not accepted in the Dutch tax system, suddenly tax is not so exciting anymore for these tax payers.
Trust and tax
Apparently in more exotic parts of the world you can set up a Trust and if you put money in the trust, it disappears from the face of the earth. Nobody claims the bank account is his or hers, the Dutch tax office does not accept this and looks through a trust.
The Dutch tax office approaches a trust as this vehicle being transparent, the persons who are entitled to these funds, need to put the value in in their Dutch worldwide wealth when they are a Dutch tax resident. In this time and age that big data makes the world small, this also applies to the Dutch tax office.
Trust and tax – court case
The stepfather of two sisters deposited in a Trust company on Panama held by the Mossack Fonseca & Co company a substantial amount of money. The sisters were no longer part of the inheritance of their stepfather, but the stepfather set up arrangements with his son, their half-brother, to keep the sisters financially sound.
The stepfather died, to the Swiss bank accounts of the sisters was transferred EUR 200.000 and EUR 500.000 and in the news came that all the clients of Mossack Fonseca & Co were made public. This news was adopted by the Dutch tax office as very much relevant information. Based on these so called Panama Papers leaks the Dutch tax office contacted the two sisters.
The two sisters claimed never to have known about the trust and that they were not aware they should have reported the money in the Swiss bank accounts. The Dutch tax office disagreed with their statement, as the half-brother provided them since 2006 with funds, so the fact that a sum of money was made available by their stepfather must have been known to them.
The Dutch tax office demanded to receive the full bookkeeping of the two trust companies that the stepfather set up from 2006 onwards. The court agreed and put a EUR 2.500 per day penalty on the request for every day the sisters would not provide the details after the deadline expired. The sisters appealed this decision as this information request would jeopardize their civil law suit the Dutch tax office started as well. The court in appeal did not meet the sisters demand.
Trust and tax – consequences
The court case shows many aspects of taxation, but among them two aspects we think are important. One is that again the concept of trust is not accepted in the Netherlands. That implies the person who is entitled to the funds, needs to report them, and you cannot hide behind vague trust vehicle deed or rules and regulations.
The other aspect is how long you need to keep the bookkeeping on file. We know a five year period, but now the tax office is demanding the bookkeeping from 2006 onwards. In international situations the tax office can go back 12 years and in this 2018 case they are using the max of their rights. So please keep your bookkeeping on file, even if 5 years have passed.
Orange Tax Services – tax is exciting
Tax is exciting implies that we are excited to work with you within the rules and regulations known in the Netherlands. We are absolutely not excited when you think you do not need to comply with the Dutch rules by simply using the vehicle of trust and after that a Swiss bank account. Using a Swiss bank account is also so 1980’s. The Swiss are now actively communicating with other tax offices.
Stating you were not aware where the money came from, as in this case, or that you did not think it is strange to use a Swiss bank account instead of a Dutch one, is naïve. If money is transferred to you over the years, of course you ask how that is possible. And setting up a Swiss bank account with huge costs, much more than Dutch costs, is strange behavior.
Keeping your life simple and accepting that part of living in a first world country as the Netherlands comes at a price and that is the tax due over your worldwide income and assets. That we are excited about.