Incorrect VAT filing is a topic that has the undivided attention of the Dutch tax office. The tax office will make sure the correct amount of VAT is paid in the end and the justice department will address you as a money launderer. To put it in perspective.
Incorrect VAT filing
VAT (Value Added Tax) is maybe simple to you. You charge 21% VAT to the client and if you are charged with VAT you claim it back.
However, in order for an invoice to be compliant for VAT purposes the invoice needs to meet the invoice requirements. The invoice needs to contain details like name and address of the company, of the client, obvious invoice number, chamber of commerce number etc. Then the VAT needs to be correctly calculated or if the VAT is charged at 0% or no VAT is charged, you need to state why.
Basically you need to see the invoice you as company send out as a bank note. A bank note without the water mark, or in pieces or an obvious colour copy is not accepted by you or the bank. The same applies to the invoice with respect to the tax office. If the invoice requirements are not met, the invoice is not a VAT invoice.
That does not imply you do not need to pay the VAT you received, as the law dictates that if VAT is paid to you, you need to pay the amount to the tax office.
Vice versa it is the same. If you as company pay costs with VAT but either the wrong country VAT was charged, or no VAT should have been charged or the invoice does not have an invoice number or incorrect invoice number, it is not a VAT invoice and you cannot claim back the VAT.
But it can always get worse.
Incorrect VAT filing – court case
A Dutch BV company trade in vegetable oil and fats oil if I translated that correctly. The BV provided the service of taking out the oil residue from vessels in the harbor, send out trucks to collect oil from ships elsewhere and purchased used oil.
The justice department investigated the company and charge the company with money laundering and invoice fraud. The director of the BV was prosecuted and the tax office determined that the company did not pay EUR 1.2 mln in VAT it should have paid. The fine for this crime is 50% over the amount that was paid short. Basically the EUR 1.2 mln VAT that was paid short was caused by taking into account invoice with paid VAT that were incorrect. So the VAT deduction of VAT paid on invoices for service, turned out to be fraudulent invoices.
The director appealed and stated that no thorough audit had taken place and the VAT claim was only based on the Justice department research, which is not an audit. Moreover the fine was in conflict with the ‘one way’ justice . That implies you cannot be charged twice for the same crime.
The court ruled that the tax inspector has made clear beyond reasonable doubt that false invoices were processed, which justifies the EUR 1.2 mln VAT assessment and the corresponding 50% penalty.
The ‘one way’ system was not compromised according to the court, as money laundering, creating fraudulent invoices, active use of false documents are not the same as incorrect VAT filing. The fine was slightly reduced due to correction in the final VAT assessment and the fact that the period of time from the audit (2012) to the court case (2019) was rather long.
Orange Tax – Tax is Exciting
The road from running an oil trading company to becoming a convicted criminal with ditto record can easily be walked via your VAT filings. We think that is not exciting. We do instruct clients how to go about with the books, we feel sometimes like school teachers. But in the end there is a purpose to these actions, to make you compliant. That is exciting.