All my costs are deductible business costs. Such type of clients we once in a while have among our clientele. Explaining the rules and regulations is then often done for deaf ears. Court case.
All my costs are deductible business costs
Once in while we meet a client who has the opinion that all he or she does in life is related to the business. The breakfast, the home utility costs, the children toys, the holidays, the fitness costs. You name it, they label it as related to being able to perform as entrepreneur.
The above is assumed by this client, not taking into account any of the global accounting rules nor domestic tax rules. Apparently the Dutch court has similar cases. Here is one of them.
All costs are deductible business costs – court case
A Dutch tax resident lady owned a Belgium holiday home which she rented out. In 2014 a second hand car was purchased. In 2019 the tax office performed an audit on her company. The result of that audit was additional Value Added Tax assessments over the 5 previous years plus penalties.
The reason for these assessments were multiple. The entrepreneur lady deducted private costs from her business and also claimed back the VAT on those private costs. Private costs or costs of holding up a certain life style are not regarded deductible business costs.
The other reason was that the lady deducted from her business result all receipts she could get her hands on. The name on the receipt was irrelevant to her, or if needed adjusted by her. That implied she deducted costs in the name of the company of her husband and costs made by other family members.
The petrol costs made by other persons using another vehicle she deducted in her administration. Value Added Tax charged to her in another country she simply deducted from the Dutch VAT obligation. No shame at all in her behavior.
Obviously the lady disagreed with the Dutch tax office and went to court. The court ruled that the copies of the invoices she provided where not in her company name, or not open to claim back the VAT in the Netherlands. Most of those invoices were in the name of her husband business or addressed to other family members.
Furthermore the court had difficulty with the costs made for the Belgium property. Comic books, the optician costs. The costs of repair of a TV, the building of a waterfall in the garden, deduction the costs of double glassing in the Belgium holiday home. The court could not see a connection between the Dutch company and the Belgium property.
Furthermore, the second hand car was used for personal purposes, hence since 2014 onwards the tax office added the private use value to the income tax return. The court fully agreed on all aspects with the Dutch tax office.
The entrepreneur lady disagreed with the court’s verdict and went into appeal with the high court. The High court was quick in its verdict. The claimed EUR 100.000 spend on comic books for the rented Belgium house. Plus the deduction of the maintenance costs of the private Dutch house as business costs were both dismissed.
You could read in the short and firm reply of the high court that they felt very much disrespected in their profession by stating the deductions she made being valid.
Tax is exciting
We think tax is exciting. If you read the above, you wonder if there was not at any given moment a person doing a reality check with this lady. Then again, we recognize the type, not open for a reality check.
The court case is not only for the lady a method to try reduce the tax assessment imposed by the Dutch tax office. It is also panic. If the Dutch tax office adjusts the private use of a vehicle over a 5 year period plus penalty. That is a substantial amount.
On top of that come all the deducted costs that were not deductible costs. When you read what was being deducted, the number must have been substantial. That is all corrected and the minimum penalty is 25%. The moment the Dutch tax office has the impression it was done deliberately, for instance changing the names on the invoices, the penalty can easily go up from 50% to 100%.
The result may very well be that the Belgium holiday home with the water fall, repaired TV, double glassing needs to be sold to pay a for the assessment.
We try to guide our clients in the field of taxation. Not always experienced as exciting, but that prevents our clients from ugly situations as addressed above.