A recovery notice, what it is and what to do?

A recovery attack is often a bit of a shock. The Inspector does not agree with the return submitted by a taxpayer and wants to tax another income. The imposition of a recovery assessment is regularly preceded by a discussion with the tax authorities, but that does not always have to be the case.

The most important question when a recovery notice is imposed: what can be done about it now? As a rule, quite a bit! Want to know more? Be sure to read on!

What exactly are recovery assessments?

Recovery assessments are tax assessments that are imposed after the initial assessment has already been determined. A recovery assessment only occurs for so-called “assessment taxes” such as income tax and corporate tax. This assessment is imposed when the tax authorities discover that the original assessment based on the annual income or corporate tax return was determined to be incorrect or too low.

The purpose of imposing a recovery assessment is to correct any shortcomings or errors in taxation and to ensure that the taxes due are still paid.

Recovery conditions: new fact, bad faith, or obvious error

When a declaration has been submitted, the inspector must check this declaration. This is often done electronically based on the data known to the tax authorities. In addition, sampling takes place where specific reports are delved deeper. A taxpayer can therefore assume that, when the final assessment has been imposed, the return has been finally agreed. If the inspector does start collecting, this is not allowed simply because otherwise the legal certainty of taxpayers would be at stake.

A crucial condition for recovery is that there must be a “new fact”. This means that when imposing the original assessment, the tax authorities were not aware - or could not reasonably be aware - of certain facts that have now come to light.

Not in all cases, a new fact is necessary in order to recover:

1. If there is bad faith on the part of the taxpayer, such as intentionally providing incorrect information.
2. If there is an “obvious error” to the taxpayer in the final assessment. These are assessments that differ so much from what a reasonable tax would be that the taxpayer should have known that the assessment is incorrect. In any case, this is the case if the assessment differs by at least 30% from what it should have been in the event of a full and correct levy.

What is considered a “New Fact”?

A new fact can be described as information that was unknown to the inspector when the attack was imposed, deliberately not imposed, or in the event of a previous recovery attack. Moreover, in the proper exercise of his duty of investigation, this information did not reasonably have to be known to the inspector either. If the inspector takes his duty to investigate too narrowly, there may be official absenteeism, which makes recovery difficult. The inspector's duty to investigate is based on article 3:2 of the General Administrative Law Act (Awb) and later case law. Although the inspector may in principle rely on the accuracy and completeness of the submitted declaration, he must also consult other available information when imposing an assessment. It often happens that a book investigation reveals new facts, after all, the Inspector will review all the details and records of a taxpayer. However, it is not always the case that everything that is discovered during a book investigation is a new fact. This could include the situation that a book investigation started after the initial assessment was imposed. If the filed declaration should have already given rise to an earlier investigation (i.e. before the imposition of the final assessment), the 'new' facts are deemed to have been reasonably known earlier and the findings therefore do not qualify as a 'new fact'.

How long can you delay? Five or even twelve years

In principle, the period for recovery is five years after the tax debt has arisen. If a delay has been granted before filing a declaration, the recovery period will be extended by the duration of this delay.

However, the recovery period can also be extended in certain situations. There is a specific extension of the period from five to twelve years when the income or assets are “held or arose abroad”. This includes the unspecified foreign bank account in box 3, for example. It is expected that in the case of cryptocurrencies, the tax authorities will take the position that they are also located abroad and therefore have a recovery period of twelve years. However, this is a point where there is considerable debate. Should the tax authorities take this position, we therefore recommend challenging it (with the assistance of a consultant).

However, the tax authorities are bound by an expeditious requirement. This means that the inspector must take action when a reasonable suspicion arises or piece of information has come into his possession. The question then arises what exactly “acting expeditiously” is? The Supreme Court has in a arrest indicated that it is in any case not allowed for the inspector to take no action for six months.

What to do in the event of a recovery attack?

If a taxpayer finds that a recovery assessment is being imposed when it is incorrect based on the above requirements, the assessment must be lodged. It is therefore very important here that the attack is contested within the objection period of six weeks.

The tax authorities can then decide to destroy or amend the assessment after all. If this does not happen, the taxpayer can appeal to the tax court.

In conclusion, we note that taxpayers can arm themselves with knowledge about the requirements of recovery assessments. If you are confronted with a recovery assessment: we regularly assist clients in discussions and proceedings against the tax authorities and are happy to schedule an intake with you!