Notice of legal validity of inability to pay does not expire

Has the tax collector ever stated that a Notice of Insolvency is valid? Then he can’t just go back to it.

Since 15 April 2005, a man was a director and sole shareholder of a holding company, which in turn was a director and sole shareholder of a company. The holding company and the company formed a fiscal entity (FE) for VAT purposes. On 30 December 2011, the tax authorities imposed a VAT surcharge of €2,049,810 including interest on FE. This amount related to the period from 1 January 2006 to 31 March 2010. The inspector considered that FE had wrongly applied the zero rate for intra-Community car deliveries. According to him, she should have known that she was participating in a chain where VAT fraud took place. FE appealed and requested a postponement of the payment, but that request was rejected by the tax authorities. On 28 March 2012, the tax authorities held the farm and the company liable for the unpaid additional VAT assessment of the fiscal unit.

Complaint procedures

The amount had to be paid before 10 May 2012. On 10 April 2012, the companies submitted reports of inability to pay. On 2 May 2012, the tax authorities marked the reports as legally valid in letters. However, the recipient indicated that the reports would still not be legally valid if it later turned out that the information was incorrect. In an appeal procedure, the Tax Court ultimately reduced the supplementary assessment to €828,614. DGA was also acquitted in a criminal case for VAT fraud and knowingly submitting a false or incorrect declaration. On 22 December 2016, the recipient notified FE that it was still entitled to payment of the VAT liability. A new statute of limitations also began to run. On 11 November 2019, a preventive seizure of the real estate was carried out on behalf of the recipient. On 4 February 2020, the recipient held DGA responsible.

No statute of limitations

The DGA appealed this liability. Firstly, he claims that the liability is time-barred. The Gelderland district court finds that a liability debt is not independently time-barred. This debt only expires when the tax assessment that is the basis for it has expired. The recipient had validly interrupted the statute of limitations on the tax debt on 22 December 2016. On that date, a new limitation period of five years had started. DGA’s liability is therefore not time-barred.

Legal notices of insolvency

The court then discusses the legal validity of the reports on inability to pay. The recipient has reconsidered his position that the notifications were made legally. He argues that the reports were not made in time. There will also be minimal gross negligence and possible (conditional) intent. However, at the hearing, the recipient only states that the information is incomplete. According to the court, this is not the same as false information. Furthermore, this incomplete information relates to FE’s significant tax debt and not the companies’ inability to pay. The court determines that the recipient is acting contrary to the principle of legitimate expectation. He must therefore not return to the letters of 2 May 2012. The notices of inability to pay were made legally.

No bad management

Now that the notification of inability to pay has been made legally, the recipient must demonstrate that DGA can be blamed for improper management. But he is unable to convince the court of that. Until January 1, 2018, FE correctly applied the zero rate to supplies to an entrepreneur in Estonia. Later, a company intervened. As a result, the zero rate no longer applied, but the owner manager did not need to know that. He is not a VAT specialist. The court also does not find that the administration is so imprudent that it is inappropriate management. Therefore, the court annuls the decision on liability.

Law: art. 32, second paragraph, 36b and 43, first paragraph Iw 1990

Source: Gelderland District Court 26 April 2022 (published 6 June 2022), ECLI:NL:RBGEL:2022:2142, AWB 20/3673

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