Mistakes found in 78 tax rulings with multinationals

The Dutch Tax Authority made procedural mistakes in at least 78 tax rulings with multinational companies, State Secretary Menno Snels of Finance wrote in a letter to the Tweede Kamer, the lower house of Dutch parliament. The government will not abolish rulings, but will revise the way in which they are issued to prevent further mistakes, Snels wrote.

A tax ruling is meant to give a company clarity in advance on how much tax it has to pay and which rules and regulations apply to it. The idea is that companies, who often have to submit complex tax declarations, are not faced with unexpected taxes. The Ministry of Finance investigated 4,462 rulings after Trouw reported last year that internal procedures weren't followed in a ruling with Procter & Gamble. This investigation only looked at whether the correct procedures were followed in issuing rulings. Whether the rulings were correct in content was only investigated if procedural errors were found.

A total of 78 procedural errors were found. Most were made by local tax inspectors, instead of a special team established specifically to handle tax rulings with multinationals. Procedural errors were found in 72 of the 1,361 rulings made by local inspectors. In 63 cases the investigators concluded that these rulings should actually have been submitted to the rulings team. To prevent this type of error in the future, Snel plans to have the rulings team handle all agreements with international companies.

The team itself also made some mistakes, Snel added. Possible procedural errors were found in six of the 3,101 rulings made by the rulings team. Three of these still need to be further investigated.

The investigators also checked the rulings with procedural errors on content. In two cases they found 'substantive errors' - tax rules that were not properly applied. Three other cases "probably" contain substantive errors, Snel wrote.

Despite these mistakes, Snel is still in favor of rulings. "Prior consultation and giving certainty in advance are key elements in the supervision of the tax authorities and are an important pillar of our business climate", he said. He will however review the process of issuing rulings with the Tweede Kamer and a group of independent experts to see what changes can be made to prevent further mistakes.

In addition to having the rulings team handle all agreements with multinationals, Snel will look at to which extent giving certainty in advance is still appropriate to all tax forms, he said. He will also investigate the substance requirements for rulings, so that "only companies with real added value in the Netherlands" can get a ruling. The State Secretary hopes to have the new rulings regulations ready by January 1st, 2019.