What to do in case of error in the statement?

Where work is done, mistakes are made. Even when preparing the year numbers and the associated tax return, things sometimes go wrong. What are the options for recovery under tax law? And what is the error theory? Both apply in income tax as well as in corporation tax.

As the old saying goes, where there is farce, chips fall. An error is easily made in the tax return. This actually means that the tax return in the previous year was not correct, which is why the tax payment was too high or too low. This can be to the advantage of or against the taxpayer. What are the consequences? And how do you handle it best?

In order to be able to answer these questions, it is good to first examine the question of how profits are generated under the total profit principle and annual profit principle. The use of the terms ‘total profit’ and ‘annual profit’ gives the impression that there are two different types of profit. In addition, there may be a conflict between these principles if an error is detected.

Also read: The last VAT return in 2021 and the first in 2022

Overall profit principle

The origin of the total profit principle lies in the Income Tax Act. And via the link provision in art. 8 pcs. 1 of the Dutch Corporation Tax Act, this also applies to corporation tax. This means that from the moment the company is started up to the strike, as long as a company is run, all benefits from the company are included in the tax. In short, the total profit, from start to finish in a company, is included in the taxation.

But how is this determined? To this end, the legislature adapts to the change in the company’s assets. However, there are also movements in capital that are not part of the taxable profit, such as deposits and withdrawals of capital.

Schematically it looks like this: end capital – start-up capital – capital contribution + capital withdrawal.

There is also the principle of continuity in the balance. In short, this means that financial years must harmonize. The ultimate balance sheet for one year is the opening balance sheet for the next year. This ensures that no profits fall between the two and it also ensures that there is no double taxation.

Annual profit principle

There is also the annual profit principle. The purpose of the annual profit principle is to tax the actual profit for that year.

art. 3.25 The IB Act applies to the annual profit. This article stipulates that the annual profit must be determined on the basis of good commercial practice. In fact, it means a business has to behave like a ‘good’ grocer. This gives some freedom to determine the profit. In the absence of a defined area, general guidelines and principles to be defined on a case-by-case basis should provide clarity. Many ways are allowed as long as they are financially acceptable and do not conflict with other legislation.

Due to the principle of balance continuity, there is a connection between the annual result and the overall result. Because the financial years correspond to the total profit, all annual profits together must correspond to the total profit. The profit for the year is therefore the difference between the final capital of the year in question and the opening capital of the year in question.


The overall profit principle and the annual profit principle therefore both play an important role in determining a company’s taxable profit. The moment an error is detected, it is likely to affect an already established final balance. The question that arises at that moment is whether the wrong final balance, with an error, should be used as a new opening balance, or whether a new final balance should be drawn up. Does the annual profit principle or the total profit principle take precedence? The Supreme Court has stated that the principle of total profit takes precedence, whereby the balance continuity is broken. The wrong balance will be taken over and the error will be corrected. In the case of an error that the inspector cannot correct with the general remedies, the corrective methods, then this error must be corrected using the error theory in the oldest outstanding year.

Recovery methods

If an error has been committed, it must first be examined whether this error can still be corrected in the financial year to which it relates. An error committed in a previous financial year can be corrected using the following methods.

Corrected statement

Neither the auditor nor the taxpayer is bound by the initial tax return. The statement is seen as an aid in determining the assessment. This means that it is still possible to deviate from it. The inspector may adjust the assessment taking into account any errors in the declaration. The taxpayer is free to adjust his already submitted tax return until the time of calculation. If the taxpayer discovers an error after the tax return has been submitted, it can still be adjusted by submitting a new supplementary return. This is possible until the assessment is issued, after which the taxpayer must focus on the objection and complaint phase.

Objection or complaint

Once an assessment has been imposed, the taxpayer may still wish to deviate from it because certain circumstances are incorrect. At that time, the taxpayer against whom the tax assessment is issued may object and, if necessary, appeal. If the objection is rejected, the taxpayer can appeal the decision. An appeal can only be lodged with the administrative court if it concerns a tax assessment or a decision that can be objected to. Please note that the general deadline within which to appeal against a decision on an objection is 6 weeks. These 6 weeks start the day after the date of the decision of the objection. Sometimes a different dispatch date is mentioned in the decision on the objection.


The inspector may impose a further assessment. He can also automatically refund overpaid tax.

In what situations will the inspector do this? Here is an overview of the most important cases:

  • there is talk of a new fact (something that was not yet known or could not have been known);
  • an estimate made by the tax authorities is incorrect;
  • bad faith on the part of the taxpayer;
  • no statement has been made;
  • there is a (obvious) typing error.

Payment of conscience money

A taxpayer can also undo a mistake by voluntarily paying the tax that would have been owed if no mistake had been made. This somewhat unusual way of correcting mistakes is aptly called “paying conscience money”.

Official reduction

If a taxpayer does not agree with the imposed assessment and the objection and appeal deadlines have expired, making the assessment final, an official reduction may be requested. However, this cannot be done without further ado, for example the taxpayer cannot request an official reduction in response to new case law and / or legislation that makes it more convenient for him. Application is only possible if an error is discovered which means that the significant tax debt should have been set lower than the imposed assessment. In that case, the inspector may invoke an official reduction.

The aforementioned recovery methods are used in a fixed order, which is also stipulated by law.

Also read: VAT return: the basic rules

What is the error theory?

In addition to these recovery methods, errors in the taxable profit calculation can also be corrected on the basis of the so-called error theory. This error theory is only discussed if there is no possibility of recovery via one of the aforementioned recovery options and there is no intention or error on the part of the taxpayer.

But how do you make a correct statement if the final balance for the previous year is factually incorrect? Is it then permissible to agree with the wrong closing balance? Or should the opening balance be corrected? To solve this problem, the Supreme Court has created a system with three rules, which form the basis for the application of the error theory. In the error assessment, a line has been drawn up on how to relate to the error theory. Continuity in balance is the first rule. If this is not fulfilled, the correction rule must be applied, whereby the oldest open opening balance is set to the correct amount. Finally, there is the return rule. The goal remains that no taxation falls between two chairs.

Balance continuity rule

Based on the balance continuity rule, the opening balance for the oldest outstanding year must correspond to the final balance for the most recently determined year.

Correction rule

The balance continuity rule must be deviated from if an error has been made in the balance sheet for the most recently determined year. When calculating the profit for the oldest outstanding year, the opening balance is not the final balance for the most recently determined year, but an adjusted balance is assumed. In this way, justice is achieved for the annual profit principle, as the profit in the oldest open year is thus not affected by inaccuracies that have arisen in previous years.

Return rule

As the name suggests, the return rule returns to the first rule: balance continuity. This happens if part of the profit as a result of the regulation rule is not taxed or is taxed twice. By transferring the old wrong final balance to the opening balance, the full total profit is taxed. The final balance for the new year will be prepared on the basis of correct figures, which will lead to an increase or decrease in the relevant balance sheet item. This change will be included in the tax. And then the circle is complete again.

Influence of the judiciary

The doctrine of heresy is a doctrine that is based on case law and is not described as such in the law. However, there is a huge amount of case law on this subject, which means that this subject is always changing. The origin of the error theory comes from a judgment from 1952. The judgments have therefore existed for a long time, the question is whether they should be renewed.

In addition, there are also judgments from the Supreme Court where the error theory cannot be applied. For example, the error theory does not apply if it is not a question of correcting a balance error, but only of correcting the taxable profit. Even a wrong application of the starter’s deduction can not be corrected using the error theory, for example.

No limitation period

If you discover a fault, first check if it can still be repaired via the regular paths. If this is not possible because the assessment has already been irrevocably determined, you will arrive at the error theory. The error theory is about the annual profit and is therefore an error that is contrary to good merchant practice. Pay close attention to whether your discovered error qualifies for correction via the error theory, after all, only incorrect balance sheet items from the past that affect the income statement are eligible for the error theory. Finally, the remark that the error theory also applies after the expiry of the recovery period, which effectively prevents tax debts from becoming obsolete.

Author: BA Middeldorp AA RB is a consultant at Trivent auditors and tax advisor (b.middeldorp@trivent.nl)

This article was published in cm: 2022, ep. 3.


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