Legal protection under pressure in information requests

On 6 February 2024, State Secretary Van Rij submitted a research report on information orders to the House of Representatives. The report reveals that not only have the bottlenecks in the information order procedure, identified in 2016, worsened, but a new issue has also emerged. This has increasingly put the originally intended legal protection at risk.

The Tax Administration has a wide range of tools to obtain information. For instance, digital platforms like Vinted and Airbnb have recently been required to share data with the Tax Administration under the European DAC7 Directive. In addition, the Tax Administration has traditional powers of control to gather information, such as a request for information from the taxpayer or a third-party investigation at third parties, such as accountants or trust offices, to collect information about the taxpayer.

Limits to authority

Although the Tax Administration has broad powers, these are not unlimited. As such, there is often debate over the scope or legality of an information request or third-party investigation.

Issues that arise include whether the tax inspector has observed the general principles of proper administration and whether the inspector is conducting a “fishing expedition”. This refers to the inspector requesting overly broad and random information in the hope of finding something. This is prohibited and is especially contentious when the Tax Administration requests access to digital devices, such as smartphones or email accounts.

Another current issue is whether the Tax Administration is allowed to ask purely penalty-related questions. These are questions aimed at determining whether there was intent or negligence on the part of the taxpayer in relation to an imposed penalty. The Tax Administration believes that the legal basis for asking such questions can be found in Section 47 of the General Tax Act (AWR). However, we strongly question this, as Section 47 AWR only obliges the taxpayer to provide information for the purposes of “taxation” and not for “penalisation”.

Challenges to legal protection

To protect taxpayers and those obliged to maintain records from the exercise of control powers and unlawful information requests, the *Dezentjé Law* came into effect on 1 July 2011.

In essence, the law allows the tax inspector to issue an information order if they believe that a taxpayer is not fulfilling their obligation to provide information (Section 47 AWR) or their record-keeping obligation (Section 52 AWR). If the tax inspector does not issue an information order, a tax case proceeds according to the normal rules of evidence. However, if the inspector does issue an information order, is proven right, and the taxpayer still fails to comply, this may lead to a reversal and intensification of the burden of proof.

Although the information order was originally introduced to offer protection, there are many critical views in practice about how the law operates. The report highlights, among other things, the long processing times, the limited utility in disputes over compliance with the record-keeping obligation, and the fact that the inspector can demand compliance with control questions either in parallel or separately through a civil summary judgment procedure.

Additionally, in our view, the fact that only the inspector can decide whether to issue an information order is a significant shortcoming. This is especially problematic when criminal law overlaps. Failing to provide information, or providing incorrect or incomplete information, constitutes a criminal offence. While a procedure on an information order is ongoing, the Public Prosecutor’s Office (OM) will be declared inadmissible, but if no such procedure exists, criminal prosecution can begin without the taxpayer having had the opportunity to challenge the legality of the information request in a tax procedure. A taxpayer who believes they have legitimate grounds to resist control questions therefore risks criminal prosecution. This can happen if the inspector chooses not to issue an information order but instead initiates criminal prosecution.

As a result, legal protection is under pressure. Given the severe penalties for non-compliance with an information request, there is a strong need to protect those seeking justice from unlawful information requests. It is therefore advisable to seek expert assistance when faced with doubts or questions about an information request.