Deel 5 Summary

The present study comprises research on the significance of legal principles for the legal protection of the taxpayer. This research focuses on the principles of legality, of equality and confidence. By tradition, the dominating principle in Tax Law was that of legality. But this changed over the last decades. Not merely by development of the principle itself, but also because the principles of equality and confidence carne to complement the taxpayers’ legal protection. In some situations, the latter two principles justify taxation at a lower rate than the Law prescribes. The research into the significance of these three principles and their mutual interaction comprises two parts, a theoretical part and a practical one.

Chapter 1 covers the first, theoretical part, and discusses to which extent the principle of legality – in the sense that tax debt is a direct consequence of the Law – has managed to survive in modern times. It turns out that both the Revenue Service and the Judiciary play important parts in this respect. First of all, in Sections 1.1 and 1.2, 1 have examined the role of the Revenue Service. What turns out to be important in that context, is the rise of a practice of articulated establishment of standards. As a complement to the legislation, on a large scale the Revenue Service have taken more detailed positions, varying from general policy rules to concrete commitments. This practice increases the predictability of taxation: tax subjects know what to expect before an Assessment is raised. They know the positions the Inspector will take in raising the Assessment. On the one hand, this concerns positions that interpret the Law. The Jack of clarity of legal regulations is dispelled by the Revenue Service’s indication of their view of the regulation’s meaning. 1 have taken the position that this practice must be seen as a consequence of the principle of legality. For the Revenue Service, the principle implies a demand for further standardization of indistinct legislation.

On the other hand, it concerns viewpoints of the Revenue Service that have a longer reach. In some situations the application of the tax legislation is experienced as too constricting. It is then that the Revenue Service frequently takes antilegal positions, so as to enhance the aim and intent of the legal provisions. In this framework it’s always to do with positions that favour the taxpayer. Here, the most important example are the approving positions of the Undersecretary of Finance. 1 have indicated that these viewpoints concern the importance of the principle of equality. Taking such positions praeter legem is determined by that principle. To that extent it appears that the Revenue Service also, in carrying out the tax legislation, must observe the equality principle of Article 26 of the International Covenant on Civil and Political Rights (ICCPR). This Article has internal vertical effect. In that context I have pointed out that for our society the politico-philosophical principle of equality is of fundamental importance. This fundamental equality principie imposes more rigorous demands on the authorities than on the citizen. And these stricter demands are also expressed in the Judiciary’s application of’ Article 26 ICCPR. Thus, taking positions by the Revenue Service is supported both by the legality and the equality principies. It is important that this applies to the Undersecretary as well as to the Inspector. In this respect, the former bears special responsibility for the unity in application of the Law by the Revenue Service as a whole. For him, the equality principie implies that he is responsible for the coordination and authorization of the policies of the various Inspectors.

Vis-à-vis the Revenue’s role in protecting the tax subjects, we find the Judiciary’s. It is discussed in Section 1.3. In considering whether in concrete cases strict application of the Law must yield, the Judge primarily employs the perspective of the individual taxpayer’s legal protection. Thus the Judge may consider the Revenue Service bound to a certain position, while this Service had no such in-tent. In some cases the Revenue Service is bound to an incorrect application of the Law, regardless whether these cases result from the Judge’s different interpretation, or from a Service mistake or from its ignorance.

Insight into the way in which the Judge proceeds in this consideration, is offered by the distinction between legal principies and legal rules. Both are part of the legal system. Contrary to legal principles, legal rules apply in an all-ornothing fashion. By nature, legal principies differ. If these are involved, they are a reason for a certain decision. In the same situation, other-principles may point towards a different decision. Coherent with this is that principles carry weight. And the Judge has to take that decision which is supported by the weightiest principie. The breakthrough decisions concerning the confidence principle, BNB 1978/ 135-137, offer examples of this: in the event that the Undersecretary published a policy rule favouring the taxpayer, the legality principie yields to the confidence principie.

Thus, in his decision the Judge expresses the priority of one principie over the other. Should the occasion arise, this makes available a priority rule. Such a rule is described as a norm on the basis of which in the case of conflicting principles, it is possible to decide which principie carries most weight, or has priority. The distinctive feature such priority rules share with common legal rules, is that they apply in an all-or-nothing fashion. Thus a research model is available for charting the Tax Judge’s jurisprudence in the field of the confidence and equality principles as general principies of good governance.

At this point 1 have expanded the field of research. In addition to principles of good governance, there are also related principles of good legislation. As the occasion arises, the Judge weighs these too, against the legality principie. For the legal protection by the Judge, the equality principie as a principie of good governance, turns out to be more significant than the principles of confidence or legal security. As Article 120 of the Constitution excludes judicial review, such review of formal laws to establish whether they are in accordance with the confidence principie is impossible.

Because jurisprudence on both levels, of the Law and its execution, shows great affinity, research into priority rules is also partly comparative in character.

With regard to the equality principie, the distinction between the formal and material equality principies turns out to be important. The formal one declares equality before the Law. For the authorities this means the demand for consistency in carrying out laws and rules. In the jurisprudence concerning the principies of good governance, this element recurs as the confidence principie. Next, it was established that the formal equality principie makes no demands on the rule’s content, only that in its execution the authorities must be consistent. Thus it has a procedural character. The material equality principie, on the other hand, does concern the rule’s content. On the basis of this latter principie, the Judge reviews whether the case involves unequal treatment in equal cases, and if so, whether this is justified.

Part 2, the practical part, presents the research results. It indicates the roles of priority that can be identified in the jurisprudence, and discusses the various criteria of these priority rules. The priority rules with regard to the confidence principle are described in Chapter 2, those regarding the equality principie in Chapter 3.

The priority rules of the confidence principle all concern confidence that the taxpayer derives from the conduct of the Revenue Service. Its actions or omissions must be the cause for that confidence. Otherwise there is no confidence to protect. The Revenue’s actions that are important in this framework, all have in common that they have inspired confidence among the taxpayers that in raising his Assessment, the Inspector will take a certain position. This offers the core of an appeal to the confidence principie, and amounts to a demand for consistency. The taxpayer expects the Revenue Service to act consistently with regard to its previous position.

The way in which the Revenue Service inspires confidence, is always coherent with a specific act of that Service. These specific acts form a spectrum, at one end of which are published policy rules of the Undersecretary, while at the other end one finds omissions of the Inspector that may be deemed to endorse a certain viewpoint of the taxpayer. Thus the jurisprudence distinguishes a number of priority rules. Those of the policy rule and of the commitment share the characteristic that the Revenue Service declares itself bound to a certain position. Here the bond with confidence inspired by a policy rule is strongest. Since its Guideline decision, BNB 1990/194, the Supreme Court also considers the interpretation of policy rules as part of its task. What is involved in the commitment is the confidence that the taxpayer could reasonably derive from it, and the extent to which the commitment conflicts with a strict application of the Law. Then there are the two priority rules of confidence, one inspired by general information, the other by specific information. These rules have in common that the Revenue’s conduct is primarily informative. When it comes to generally and specifically informative conduct, then basically the consideration favours the legality principie. Here the importante of good and unrestricted information by the Revenue Service plays a decisive part. Only if the taxpayer has suffered damage, in some circumstances the trust principie may carry most weight.

Finally an inventory was made of the priority rules of implicit positioning. With the rules of general and specific information, these rules have in common that there is no speech act on the part of the Revenue Service that aims to bind it to a certain position. They distinguish themselves from the other priority rules in that there is other conduct of the Inspector’s from which the taxpayer thinks he can derive the confidence of a certain position. This conduct is always closely inter-woven with a specific situation, such as raising an Assessment and carrying out an inspection on a taxpayer’s premises. Another example is the Inspector’s longterm failure to respond to a taxpayer’s position. In some circumstances an Order for reduced Wage Tax or for a refund of Sales Tax may also inspire confidence that the Inspector has to honour.

Chapter 3 discusses the priority rules of the equality principle. It turns out that both the formal and the material equality principles are important. One part of the priority rules expresses the formal equality principle, the other part expresses the material equality principle. Here, the formal equality principle previously described as equality before the Law, must be understood as equality before the rule. The Revenue Service should apply the rule it employs, to all cases and not just to some. In the jurisprudence one can point out three priority rules that thus render concrete the demand for consistency. The starting point in such procedures always is that the taxpayer suspects unequal treatment: in comparable circumstances, the Revenue Service has treated other taxpayers more favourably than himself. The first priority rule is in order if the Inspector applies an unpublished policy rule, but not to the taxpayer involved. The second rule, of intent to favour, is closely related to the first one. If within a group of taxpayers, the Inspector’s intent to favour results in more favourable treatment of some, then the demand for consistency impones that the others be treated likewise. The third rule is the majority rule. Should the Inspector treat the majority within a group of taxpayers more favourably than the Law prescribes, then basically he must do the same for the others. In that case, on the basis of a more favourable treatment of the majority, the Judge assumes a rule that must also be applied to the others. As these three priority rules all express the demand for consistency, the Supreme Court could have classed them under the confidence principle.

The second group of priority rules relates to the material equality principle. Central to this principle is the content. The content of the authorities’ policy rules is not allowed to violate the material equality principle. They must not amount to unequal treatment in equal cases, if there is no objective and reasonable justification for this. From the aim of the policy rule and the legal regulation(s) to which the policy rule makes an exception, the Judge assesses whether it’s a matter of unequal treatment. Here a limitation has been imposed: what is offered, is only a discussion of the method of construing a rule of law regarding the material equality principle. Applying the equality principle always means taking stock of the policy rule’s concrete aim. Consequently, as regards content, the Judge’s ultimate priority rule is always interwoven with that aim. Research into these priority rules in concrete cases has been left acide.

The first priority rule in this group is that of the favourable unpublished policy. This involves another aspect of the rule mentioned above. What is disputed here, is not the consistent application of the policy rule, but its analogical application to cases beyond the rule’s scope. In practice, this aspect of this priority rule occurs hardly or not at all, probably because of the taxpayer’s very awkward proof position. After all, basically the taxpayer is not familiar with the policy rules themselves. The second priority rule is that of the favourable published policy. As the policy rules have been published, the onus of proof of the policy rule’s existence raises no problems here. The Judge’s assessment focuses on the question whether the taxpayer’s case is comparable to the cases that have been brought within the policy rule’s scope. If so, this raises the next question: does the Revenue Service have a justification for the unequal treatment? In the discussion of the jurisprudence with regard to this priority rule, it has become clear that the equality principle also functions as a check on the legal system’s content. The policy rule should not introduce unequal treatment within the legal system. If it does, the Judge will put an end to the inequality that has arisen.

Pursuant to the discussion of the priority rule of published policy, attention was paid to the kinship with the Judge’s test of generally binding regulations against the material equality principle. At the end of Part 1 generally binding regulations had already come up for discussion, following which the conclusion of Chapter 3 offers an outline of the jurisprudence in these matters. This outline explains that essentially the same legal principle, the same method of construing rules of law are involved as in the case of policy rules. But there are three points in particular that show differences with the jurisprudence regarding policy rules. First of all, with regard to generally binding regulations, the Judge leaves the legislator a wider margin of appreciation than in the case of policy rules he leaves to the authority that issues these. In particular it is important here that in the case of a law it is far more a matter of democratic legitimization than in the case of policy rules, where legitimization is less explicit. All policy rules are deemed to have been issued by or on behalf of the Undersecretary. Here, as regards content, the Lower House inevitably can only carry out marginal verification.

A second difference is obvious in the situation where the Judge has established unequal treatment that is unjustified. In the case of generally binding regulations the Judge may decide to leave the unequal and unjustified treatment intact, because otherwise he’d have to make a choice that lies beyond his task as a formative agent in the field of Law. Thus it’s a matter of relative direct effect of the equality principie of Article 26 ICCPR. My comment on this jurisprudence was that the Judge should not too quickly decide to do so. For this would deprive the taxpayer of equal treatment. In such cases the legislator must consider such decisions a hint to adapt the legislation without undue delay.

The third point also concerns an instance of relative direct effect of Article 26 ICCPR. Sometimes the Judge leaves the violation of the equality principie undecided because meanwhile the legislation has been changed, or soon will be. According to the Judge this leaves no sound reasons for intervention. But in the case of policy rules, the Judge does not leave the Revenue Service this escape option. 1 have advocated that in cases in which the legislator has obviously failed to remove a discriminatory element, the Judge should declare it to be a matter of unlawful unequal treatment.

The research concludes that for Tax Law the equality principie is of fundamental importance. It enables the Judge to offer the resistance to legislator and government that is indispensable in a democratic society.