8.2 SUMMARY

This research examines the way in which the Dutch tax authorities may offset one or more amounts owed to a taxpayer against amounts owed to the tax authorities by that taxpayer. Since 1 June 1990 such set-offs have been governed by the specific rules provided for in Article 24 of the Collection of State Taxes Act [Invorderingswet] 1990. Prior to the introduction of this Article, no separate set-off arrangements for the tax authorities existed. The legislator’s intention in introducing Article 24 of the Collection of State Taxes Act 1990 (“CSTA”) was to improve the tax authorities’ ability to offset debts and claims, including establishing the basic principle of the right of set-off being available only to the tax authorities. Taxpayers by contrast have no such right. It is important to note that the set-off rules provided for in Article 24 CSTA have regularly been amended, sometimes in response to Dutch Supreme Court case law that has not favoured the tax authorities. In addition, a generic rule for money debts in administrative law was introduced on 1 July 2009 as part of the fourth tranche of the General Administrative Law Act [Algemene wet bestuursrecht], and this

(specifically Article 4:93 of the Act) includes provision for such debts to be offset. Although this latter provision admittedly leaves the system laid down in Article 24 CSTA intact, it nevertheless influences it, while also suggesting that set-off by the tax authorities is an administrative law matter. It was found, as discussed at the start of the first chapter and with reference to two cases involving set-off, that the effects of the rules contained in Article 24 CSTA have not always been more beneficial to the tax authorities than the position that the tax authorities enjoyed before Article 24 CSTA was introduced. The Supreme Court stated in a ruling in 1993 (Nieuwkoop v. Collector of Taxes), relating to the situation before the introduction of Article 24 CSTA, that the tax authorities’ application of the right of set-off could not be seen as a tax collection measure, but rather as a means of settling a debt. It also follows from the Supreme Court’s findings in this case that the public law nature of a tax debt does not prevent set-off by the Collector of Taxes. Based in part on the two set-off cases and the Supreme Court ruling referred to above, this research examines the need, or otherwise, for the tax authorities to be assigned separate set-off arrangements that derogate from the civil law rules of set-off provided for in Book 6, Articles 127 ff of the Dutch Civil Code. It was concluded that the legislator of Article 24 CSTA did not provide convincing arguments to substantiate the need for separate set-off arrangements for the tax authorities. Article 24 CSTA was also found to diverge in a number of essential respects from the requirements stipulated by the Civil Code in respect of set-off. One of the crucial differences identified in this respect was that the tax authorities are entitled to offset claims even if the requirement for mutual indebtedness has not been satisfied. This arises when the tax authorities offset claims by other government authorities and in the opportunities available to the tax authorities to offset corporation tax in situations where groups of companies are taxed as a fiscal unity. The questions examined in this research are: d. To what extent do the set-off rules of Article 24 CSTA diverge from the set-off rules provided for in civil law? e. What reasons did the legislator use to substantiate and justify such divergence (and the need for it)? f. Do these reasons constitute sufficient and proper grounds to justify the divergence from the civil law provisions? Following on from these research questions, section 1.7 discusses the role and position of various authorities in collecting and offsetting taxes. Although it was concluded to be very important, for the functioning of the various authorities, to generate tax revenues, not all means can be used to justify this end. Government also needs to take account in this respect of the justified interests of other parties involved in taxes collected. Allowing the state’s interest in generating tax revenues to prevail over all these other interests will ultimately have an adverse impact on the credibility of the government, and this in turn can undermine its legitimacy and sovereignty. Section 1.7 discusses how the collection opportunities available to the tax authorities can be restricted in such a way that government retains its credibility and legitimacy as a party that does not seek to collect taxes at any price, but also takes account of justified interests of other stakeholders. It was concluded in this respect that, even without the set-off opportunities provided for in Article 24, the CSTA provides the tax authorities with sufficient means to generate the desired tax revenues. Section 1.8 examines the set-off provisions available to tax authorities in other legal systems (the United Kingdom, the United States, Germany, Belgium and France). The research found that none of these legal systems allows tax authorities to include claims by other government authorities in a set-off in the way permitted to the Dutch tax authorities under Article 24.1 CSTA. It was also found that modern legal systems, such as those in the United States and Germany, equated the position of the tax authorities in cases of set-off with that of other parties (private or otherwise). It would appear, therefore, to be perfectly possible to allow the set-off of tax debts and claims to be governed by the rules of private law. Chapter two starts with an overview of the requirements imposed by Dutch legislation and case law on set-off arrangements under civil law. The extent to which Article 24 CSTA diverges from these civil law provisions was then examined. The main divergence in respect of amounts offset under Article 24 CSTA was found to be that only the tax authorities have the right of set-off, that Article 24 CSTA diverges from the requirement for mutual indebtedness and that in certain circumstances the tax authorities are permitted to offset tax debts that are not yet enforceable

(Article 24.2 CSTA). In addition, Article 24.4 CSTA also includes a provision that limits the opportunity to assign or pledge a tax refund by making such assignments or pledges subject to the prior consent of the Collector of Taxes. Although the legislator was seeking in this way to safeguard the tax authorities’ right of set-off in respect of such refunds, it was found that the civil law provisions for set-off after assignment or pledge, as provided for in Book 6, Article 130 of the Civil Code, are in fact likely to prove more beneficial to the tax authorities than the provisions of Article 24.4 CSTA, while Article 24.4 CSTA also results in additional formalities and lacks clarity in many respects. Chapter three examines how tax debts and claims were offset before the introduction of Article 24 CSTA in 1990. In the ruling in Nieuwkoop v. Collector of Taxes referred to above the Supreme Court indicated that, before Article 24 CSTA came into force, the tax authorities were allowed to offset debts and claims under civil law provisions. In the Beoosten de Vecht case of 11 April 1924 the Supreme Court ruled that a taxpayer was not independently entitled to proceed to offset a tax debt. It is unclear, however, as to whether this prohibition on set-off remained in force until such time as the provisions of Article 24 CSTA were introduced. It is argued, based on the research, that the prohibition ceased to apply in 1930 and that, as a result, taxpayers were entitled between then and 1990, when the CSTA came into force, to offset tax debts under the rules of set-off provided for in the Civil Code. This chapter also discusses the issue of assigning premiums due under the Investment Accounts Act [Wet Investeringsrekening], which was a phenomenon relating specifically to the 1980s. The tax authorities were afraid that allowing such claims on the tax authorities to be assigned would worsen the tax authorities’ position in respect of their right of set-off. This was one of the main reasons why it was decided to include in Article 24.4 CSTA the requirement for the tax authorities’ consent before the taxpayer can assign or pledge amounts owed by the tax authorities. However, the Supreme Court case law analysed in respect of the assignment of premiums due under the Investment Accounts Act shows the tax authorities’ fears of a worsened position to have been unfounded. Chapter four discusses and analyses the legislative history of Article 24 CSTA. It was found that, in formulating these specific set-off rules, the legislator failed to pose the basic question of whether it was in fact appropriate to include set-off provisions for the tax authorities in a Tax Collection Act, given that such a right of set-off had been ruled not to be a tax collection measure, but instead a means for the tax authorities to settle a debt. The legislator also failed to give explicit consideration to whether the set-off rules available in civil law could be applied by the tax authorities and the extent to which additional, special rules were in fact needed – and justified – in order to allow the set-off of tax debts and claims. The legislator merely indicated in a general sense that the specific nature of tax claims could prevent application of the rules of set-off available in civil law. The reason given by the legislator for excluding the set-off rules provided for in the Civil Code in cases of set-off performed by the tax authorities was that this was necessary for reasons of efficiency, specifically because the Civil Code’s requirement for mutual indebtedness was often felt to be ‘too restricting’. The way in which the excluding of the rules of set-off available in civil law was substantiated is less than convincing. Similarly, the reasons given by the legislator to support the introduction, in Article 24.1 CSTA, of the tax authorities’ right of set-off in respect of companies taxed as a fiscal unity – whereby this was claimed to be practical and a way of preventing abuse of the corporation tax system – are also unconvincing. In this respect, the legislator wrongly disregarded the fundamental criticism of this opportunity for set-off expressed by parties such as the Dutch Council of State. The history of this legislation shows that the legislator did not assign independent status to a notice of set-off issued by the tax authorities in respect of amounts to be offset under Article 24 CSTA by indicating that the tax authorities’ failure to notify a taxpayer of a decision to this effect does not affect the validity of the set-off. This principle adopted by the legislator in the CSTA would seem, however, to have been superseded by the introduction on 1 July 2009 of the provisions for money debts in administrative law in the fourth tranche of the General Administrative Law Act (“GALA”), where implementation of such a decision was made conditional upon notification having been given. The legislative history also shows that the legislator seems to have assumed that the Collector of Taxes’ consent to an assignment or pledge of a tax refund was a constitutive requirement for such assignment or pledge. If this was indeed the legislator’s intention, it would constitute an unnecessary obstacle to trade as the purport of the consent provision was to prevent an assignment or pledge from resulting in an undesired worsening of the Collector of Taxes’ position in respect of set-off. There is consequently no need, from this perspective, to regard consent by the tax authorities as a pre-condition for a legally valid assignment or pledge. Chapter five examines case law since the introduction of Article 24 CSTA. To date, there have been eighteen relevant final rulings on these set-off provisions. The case law discussed shows that Article 24 CSTA has created certain complications. Lower-level courts tend not to conduct in-depth examinations of the legislator’s intentions in respect of certain aspects of Article 24 CSTA, specifically the relationship between the set-off arrangements provided for in Article 24 CSTA and those provided for in the Bankruptcy Act [Faillissementswet], and the question of whether the Collector of Taxes’ consent to an assignment or pledge of tax refund is a constitutive requirement. In the rulings in Wilderink q.q. v. Collector of Taxes and Collector of Taxes v. Van Kampen I the Supreme Court identified crucial shortcomings in the provisions of Article 24 CSTA. On each occasion the adjustments by the Supreme Court were not in the tax authorities’ favour. The legislator responded to these rulings by moving quickly to remedy their negative consequences for the tax authorities, without explicitly considering whether these remedies were right, whether they gave due regard to the findings of the Supreme Court and whether they sufficiently accorded with the system provided for in Article 24 CSTA. The impression created by the action taken to remedy the consequences of the ruling in Collector of Taxes v. Van Kampen I, which resulted in Article 24.2 CSTA being amended from 1 January 2008, is that the amendment was not carefully considered and also failed to meet the requirements for legal certainty as explicitly referred to by the Supreme Court in its ruling. The legislator would seem not to have read the ruling properly and applied a criterion that the Supreme Court specifically indicated to be undesired. The case law discussed also shows that the courts have not found it necessary for set-off by the Collector of Taxes to be notified to the taxpayer, despite the law stating (in Article 24.8 CSTA) that this must happen without delay. This would seem to be the result of the way in which the legislative history and the Collection Guidelines [Leidraad Invordering] deal with the requirements for the notice of set-off. In other words, substantially differently from the way in which it is dealt with in set-off under civil law, where the notice of set-off constitutes an essential and necessary element of the process. Since the introduction of the fourth tranche of the GALA on 1 July 2009, notification of a decision to exercise the right of set-off would seem to have become a pre-condition for set-off and the consequences of such action. According to case law, set-off agreements by the tax authorities are possible. Some courts have allowed such agreements without setting any clear limits, such as stipulating that such an agreement should not place taxpayers in a worse position than in a set-off under Article 24 CSTA or imposing the condition that the set-off should not be incompatible with the tax system or contravene the general principles of good governance. Chapter six examines set-off by the tax authorities in cases of insolvency, with an analysis of set-offs by the tax authorities in situations involving suspension of payments, debt management arrangements and bankruptcy of natural persons and insolvency of legal persons, as well as situations in which one of the above procedures is converted into another. The third sentence of Article 24.1 CSTA specifically states that the set-off rules provided for in the Bankruptcy Act apply to set-offs by the tax authorities. As a result, the set-off rules of Article 24 CSTA do not apply in such situations. It is consequently argued that the set-off rules of Article 24 CSTA should be regarded as wholly non-applicable to taxpayer debt management arrangements, bankruptcies and insolvencies. This would mean in turn that the set-off rules of Article 24 CSTA would also not apply when tax and other estate debts are offset as part of debt management arrangements, bankruptcies or insolvencies, where the set-off rules of the Bankruptcy Act do not apply, but those of the Civil Code do. It is also argued that set-offs effected by the tax authorities in debt management arrangements or bankruptcy for natural persons and in insolvencies should be governed by the basic principle that not only the tax authorities should be able to proceed to offset debts and claims, but also the administrator [bewindvoerder], trustee in bankruptcy or liquidator [curator]. Given their duty to manage and/or liquidate the estate for which they are responsible in a sound and proper way, such persons should be allowed to take the initiative to finalise and settle tax positions by, for example, being authorised to instruct the tax authorities to proceed to set-off. Similarly, it should not be possible for fiscal formalities to be enforced against the administrator, trustee in bankruptcy or liquidator. Chapter six also examines the offsetting of tax debts and claims in consolidated insolvency proceedings. In a consolidated liquidation, the assets of the insolvent companies are regarded as a single whole. These items are converted into cash and the proceeds distributed as in the winding-up of a single entity. Set-off, too, may be consolidated. It was found that a consolidated set-off in such situations achieved the same effect for the tax authorities as the set-off as provided for in the fourth sentence of Article 24.1 CSTA for companies treated as a fiscal unity for corporation tax purposes. The research also examined set-off by the tax authorities under the EU Insolvency Regulation. Article 6.1 of this Regulation states that the opening of insolvency proceedings shall not affect the right of creditors to demand the set-off of their claims against the claims of the debtor, where such a set-off is permitted by the law applicable to the insolvent debtor’s claim. This can be of relevance to set-off by the tax authorities, specifically if the law applying to the insolvent debtor’s tax debts allows the tax authorities greater powers of set-off than in the lex concursus. It is not unlikely that a review for compliance with Article 6.1 of the Regulation would be based on the right of set-off provided for in common law (ius commune) rather than on the set-off rules provided for in the Bankruptcy Act. In the case of the tax authorities, this is the opportunity for set-off provided for in Article 24 CSTA. Section 6.5 examines set-off by the tax authorities in bankruptcies and insolvencies in more detail, based on ten cases involving situations commonly occurring in such circumstances. These cases show that a taxpayer’s bankruptcy or insolvency can give rise to a wide range of set-off situations. Trustees in bankruptcy and liquidators need to be well aware of the possible complications that can arise if tax debts and claims are offset. The extended set-off rules provided for in Article 53.1 of the Bankruptcy Act are important in this respect as they will usually prove more favourable to the tax authorities than the set-off rules provided for in Article 24 CSTA, even though the Collector of Taxes loses the power, in a bankruptcy or insolvency, to include in the set-off claims by other authorities than the Collector has been instructed to collect. The cases examined reveal a certain lack of clarity as to whether a tax claim by a liquidator or trustee in bankruptcy is eligible for set-off by the tax authorities under Article 53.1 of the Bankruptcy Act. In contrast to the case of a estate tax debt, this would seem to be the case, providing the conditions stipulated in Article 53.1 of the Bankruptcy Act are met. Based on the research conducted, chapter seven sets out a series of conclusions and recommendations. The conclusions can be summarised as follows: