Tax Debt Limitation: Everything You Need to Know

A tax debt usually expires after five years. If the tax authorities do not take action to collect the debt within that period, their right to recovery expires. This is called “statute of limitations”.

Tax debt limitation: how does it work exactly?

In tax law, limitation periods apply. These deadlines determine how long the tax authorities have to issue tax assessments and to actually collect imposed assessments. These two moments are legally strictly separated:

1. Levy: the imposition of a (recovery) attack.
2. Recovery: collecting a tax debt that has already been determined.

In this article, we explain which deadlines apply, when they start to run and what the consequences are when a period has expired.

Tax period: how long can the tax authorities wait to issue an assessment?

The first step in the tax process is to impose an assessment. This must be done within a statutory period, counting from the end of the tax year to which the assessment relates. These deadlines are set out in the General Act on State Taxes (AWR).

Declaration filed: standard period of three years

If a taxpayer has filed a timely return, there is in principle a period of three years to determine the assessment. This period begins to run after the end of the tax year¹.

Recovery assessment: five years

If, after imposing a first (primary) assessment, the tax authorities still receive information showing that too little tax has been levied, it can impose a recovery assessment.². This is allowed up to five years after the end of the tax year, provided that there is a so-called “new fact”.³

Foreign wealth or income: twelve years

In case of hidden assets or income abroad, an extended recovery period of twelve years applies. This longer period is intended to give the tax authorities sufficient time to find out foreign information.⁴

Recovery period: how long can the tax authorities collect an imposed assessment?

Once an assessment has been determined, a formal tax debt occurs. The authority of the tax authorities (more specifically: the recipient) to actually collect that debt also has a limitation period.

Main rule: five years after the origin of recoverability

The recovery period is five years, counting from the day after the due date of payment of the assessment. If no recovery act is carried out within those five years, the right to collection expires.⁵

Examples of recovery actions include:

• sending a reminder;
• issuing a writ of execution;
• seizure;
• making a payment arrangement.

Interruption: restarting the term

Any recovery act carried out on time will interrupt the limitation period. This means that the five-year period starts running again from the moment of that action. Recognition of the debt by the taxpayer, for example through correspondence, also leads to interruption.

Finally, The recipient (the name for the tax debtor) can interrupt the limitation period of a payment claim by giving a written notice unequivocally reserving his right to payment.⁶

Summary overview

Please note: the recovery period only applies if the assessment has been imposed in time. Without a legally valid assessment, no recoverable debt occurs.

What does a statute of limitations mean in practice?

When a limitation period has expired, the tax authorities lose the right to act:

• After tax limitation period (recovery) assessment may no longer be imposed.
• After the recovery period, an assessment that has already been imposed may no longer be collected.

The tax debt still legally exists as a so-called natural obligation. This means that you can still pay voluntarily, but you cannot claim that payment back as “unnecessary”.

Why are there statutes of limitations?

Limitation periods serve the principle of legal certainty: citizens and companies must know where they stand within a reasonable period of time. The government may levy and collect taxes, but it must do so within the limits of time and care. Waiting too long means losing powers.

Lastly

The distinction between taxation and collection is crucial. A tax assessment that is imposed on time can still become time-barred if the tax authorities do not take timely recovery measures. The other way around: once the tax period has expired, there can be no further assessment, regardless of subsequent recovery efforts.

Are you unsure whether the tax authorities can recover in your specific case or whether a debt may be time-barred? Be sure to contact one of our advisors.

Documentation used

¹ Article 11 of the General Act on State Taxes

² For more information about the recovery assessment, read our article

³ Article 16 of the General Act on State Taxes

⁴ Article 16 of the General Act on State Taxes

⁵ Articles 4:104 and 4:105 General Administrative Law Act

⁶ Article 27 of the Recovery Act 1990