VAT audit, never a pleasant audit as the VAT department of the tax office is very rigid. What not to do during such an audit.
VAT stands for Value Added Tax and that is charged on turnover. The amount of VAT received, as being paid by clients, is to be paid to the Dutch tax office. The VAT charged, as VAT on costs, can be reclaimed by the Dutch tax office. Mathematical this is a neutral system, psychological absolutely not a neutral system.
The VAT department of the Dutch tax office is rigid. With that I mean, really rigid. If VAT is not paid to the Dutch tax office that should have been paid, this is regarded money laundering. Money laundering is a criminal offence for which you can go to jail. Jail we think is rigid.
How not to do the VAT audit – not providing bookkeeping
Mind you, this case is about a tax advisor. The tax advisor should know better, then again, maybe this person was never fit to be a tax advisor in the first place. Hence I feel reluctant to refer to this person as collegeau, as I think he is not.
The Dutch tax office started an audit for the years 2014-2017. The tax advisor refused to provide the administration. The whole purpose of keeping an administration is to be able to have that audited!
The consequence of not providing the administration is that the tax office is going to impose what they think is the correct amount. The VAT reports show EUR 7.716 over a four year period. The tax office has the opinion that this amount should have been EUR 262.489 instead.
In the Netherlands we have an UNA VIA rule. That implies, you cannot be charged for a crime twice. This implies that the Dutch tax office does not impose a fine for VAT issues, but has a criminal court case in which jail time is demanded. Fortunate for this tax advisor a penalty was put in place.
The penalty the tax office thought was good for this situation was a 100% penalty. 100% over the EUR 262.489. Amazing. The percentage is not 25 or 50, what is the more common penalty percentage. But 100 as this tax advisor has committed this crime before. The tax advisor has similar prior convictions with respect to VAT. That could be the reason this time the UNA VIA route of penalty instead of jail time was chose. Jail time had no influence apparently on the actions of this person.
VAT court case
In court the tax advisor claimed that the EUR 262.489 VAT on turnover was not correct as the majority of the clients was outside the Netherlands. However, if you do not provide the administration, the tax office cannot determine that. Upon this claim, the tax office asked proof of those 0% VAT invoices. In court the tax advisor provided the administration. The claim was reduced significantly.
The court reduced 100% penalty to 85% based on the period of time the court case took. Mind you, the audit probably started in 2018 and now, late 2021, the court came to a decision.
Tax is exciting
We think tax is exciting. An audit is exciting too, sometimes too exciting! If you start the audit already by not willing to provide relevant details, then you have issues. The civil servants of the tax office have plenty of time and means to play this game, as they are aware they will win the game. The win is basically in you getting bankrupt. The fees and penalties nobody can afford.
To keep tax exciting, we prefer to run a proper bookkeeping for you. To comply with demands of the tax office. Us, you and even civil servants with the tax office are human beings. We all can make mistakes, for that we have audits. For mistakes the tax office makes we have the court. Still, best to stay far away from that all.