The filing of objections and appeals should be allowed to taxpayers whose names appear on the Tax Administration's "fraud list" of income taxpayers. That's what Advocate General (AG) Niessen advises the Supreme Court in three conclusions today. In those cases, complaints were filed with the Tax Chamber of the Supreme Court about the application of the 'fraud list'. Over the course of 2021, 240,000 taxpayers will be notified that they were on a Tax Administration 'fraud list' used in income tax, among other things. It is to be expected that some of them will suspect that their assessment was increased as a result of their inclusion on that list. But the deadline to file objections and appeals will have passed in many cases. The AG believes that they can still file objections and appeals, as they were previously unable to do so for lack of knowledge.
For several years, the Internal Revenue Service selected income tax returns for further investigation with the goal of combating "systemic fraud. The selection rules were not disclosed. The taxpayers concerned were not informed of their selection and the reason for it. After reports of this became public, the House of Representatives submitted a large number of questions to the government. Among other things, it became known that for some time the possession of dual nationality or nationality as such was used as a selection rule. It also emerged that taxpayers once selected were monitored annually for five years thereafter with respect to their returns.
The selection of returns with the aim of preventing system fraud took place as part of an Inland Revenue project bearing the number 1043. The names of the taxpayers involved were included in the so-called Fraud Signaling Facility (FSV), which was "used to tackle systemic income tax fraud by registering internal and external risk signals," according to an official notice from the Inland Revenue. The inclusion in what has been referred to in the press as the "fraud list" was not notified to those affected.
The inclusion of taxpayers on the list led to examination of their tax returns by the tax authorities and could result in the assessment being increased. For taxpayers for whom no selection rule applied, assessments were imposed in accordance with the return. The question now arises whether the selection always took place on legitimate grounds. The taxpayers in question could not complain about this before, since they were not aware of the selection.
During the exchange of views with the House of Representatives, the State Secretaries of Finance announced in 2020 that Project 1043 and the Fraud Signaling Facility were terminated.
In the AG's view, the registrations are "personal data" within the meaning of the General Data Protection Regulation (GDPR). All forms of processing of that data in principle violate the right to privacy. An exception is allowed when there is a specific statutory regulation for that purpose. However, the General Law on State Taxes has no such regulation; this was ruled by the Supreme Court in a 2017 ruling. In that ruling, the Supreme Court ruled that tax investigation of car use through speed cameras was not allowed due to lack of legal basis. The AG believes that for the same reason, the use of data obtained with the application of Projects 1043/FSV is not allowed.
If the Supreme Court thinks otherwise in these cases, according to the AG, the use of that data may also not be allowed for other reasons, such as violation of general principles of proper administration or provisions in international treaties or domestic law.
When an interested party complains of unlawful selection, the lawfulness of the selection must be assessed. In the AG's opinion, if the selection is unlawful, the data obtained by the tax inspector from investigations that resulted from that selection should not be used in determining the assessment. An exception could be made for cases of very serious tax fraud.
In the three cases now pending before the Supreme Court, the AG believes that in one case the Tax Court did not select unlawfully. Therefore, that assessment need not be reassessed. In the second and third cases, according to the AG, the handling of the dispute should be referred to a court of law for investigation of the reason for the selection.
It is not yet known when the Supreme Court will rule.
ECLI:NL:PHR:2021:618
ECLI:NL:PHR:2021:617
ECLI:NL:PHR:2021:619
