Newsflash | 23/06/2018
Dutch tax policy on cryptocurrency transactions published
How the Dutch tax authorities deal with cryptos
BTC, Blockchain, ICO’s, EOS, Ether etc., have grown considerably popular over the past few years, with an increasing number of people buying and selling them. With so much buzz going around, the question inevitable arises how bitcoin or other “altcoin” transaction such as mining, spending, trading, exchanging, etc. — are taxed in the Netherlands. The Dutch State Secretary of Finance, published a policy letter on May 28, 2018 explaining how the Dutch tax authorities are likely to deal with cryptocurrency transactions and how various common situations, will be treated for Dutch tax purposes.
Mining and trading by individuals
With respect to crypto mining and trading transactions carried out by individuals, an important question is whether these activities would create a source of income for Dutch tax purposes. Examples of such a taxable source of income are income from business or income from other activities. These sources of income are taxed at progressive tax rates up to 51,5% in 2018. However for these sources of income to be deemed present, certain criteria need to be met. An important test is whether a certain degree of labor has been performed. In addition, the taxpayer should intend a benefit (subjective test) and this benefit can reasonably be expected (objective test). According to Mr Snel the answer to this source question, is not easy to provide in practice. It depends largely on the facts and circumstances of an individual case. Partly because of an increase in mining activities in general and the limited number of cryptos that can be mined on a particular day, a benefit is not likely to be realized. However other criteria such as the size of capital investment in e.g. computers, is also relevant. The phase where an individual enters into the mining process, at the beginning of a new crypto or an already established one, are relevant aspects as well that will be considered in qualifying whether a benefit can be obtained.
According to Dutch case law there is no source of income in case of speculative transactions and if the outcome of the transaction cannot be influenced by the input or work performed by the individual taxpayer. This approach is also followed in case of crypto trading. If however structurally positive results are realized that can be attributed to the work of the taxpayer and which goes beyond the work associated with speculation, this could also result into recognition of a taxable source of income. The surplus yield must therefore be related to the work performed by the taxpayer (in qualitative or quantitative terms). In general however- taking into account the facts and circumstances of the case – both trading and mining of cryptocurrencies performed by an individual taxpayer will presumably not qualify as a source of income for Dutch tax purposes.
Box 3 Assets
In the absence of a taxable source of income described above, cryptocurrencies such as bitcoin will still qualify as other assets taxable under income from savings and (portfolio) investments in the so-called box 3. Taxation on income from savings and investments is in the Netherlands based on the assumption that a taxpayer will realize a fixed annual yield on their investments. Depending on the applicable tax bracket the effective tax rate for 2018 will vary between 1.63% and 5.39 %.
The assets and liabilities taxed in this box have to be reported at their fair market value at the first of January of the tax year concerned (reference date). As crypto prices may vary considerably depending on the particular exchange platform used, the most obvious price to report at reference date would be the price quoted at the particular exchange platform used for trading.
Dutch resident taxpayers are responsible for a correct and complete tax return. Taxpayers are therefore required to report their crypto holdings at the minimum as income from savings and investments in their Dutch personal income tax return, unless there is an active source of income taxable at progressive tax rates. Cryptocurrencies are for that matter no different than any other class of assets held by a taxpayer.
The Dutch State Secretary elaborates separately on the Dutch tax implications if cryptos are received in exchange for goods sold or services rendered by a business enterprise. The EUR equivalent of the crypto will still have to reported as revenue both for personal and corporate income tax purposes, as well as for value added tax purposes. Upon exchange of a crypto against EUR, there may be an additional need to recognize a currency exchange profit or loss (F/X result) for profit determination purposes.
At balance sheet date any crypto holding will have to be valued in accordance with Dutch sound business practice. Cryptocurrencies are likely to qualify as current assets, not as cash items or liquid assets. Under certain circumstances crypto can also qualify as inventory or stock assets. In both case valuation at cost price or lower market value will be the main rule.
In case of a privately owned business there may also be an issue of excess cash assets investment in cryptocurrencies. If the cryptocurrencies are purchased with cash assets owned by the business that are not necessary in the day-by-day operation of the business and the investment is done for temporarily purposes in such a way that the assets can easily be converted back in liquid assets, then the holding of cryptos by the individual will then qualify as private instead of business equity in the hands of the taxpayer, subject to tax in box 3.
Crypto transactions by legal entities
Assets held by legal entities subject to the Dutch corporate income tax act are deemed business assets without exception. There is comparable freedom to qualify an asset held either for business or private purposes as with an individual business owner subject to the Dutch personal income tax act. This means that mining and trading activities will always be subject to a profit tax. Income from such activities needs to be determined in accordance with Dutch sound business practice.
Loan wage payments in cryptos
Wages paid in cryptocurrency are treated as wages in kind. For Dutch wage tax purposes the value of the crypto at the time the wage is received must be converted into an equivalent in euros.
The Dutch tax authorities are conducting various studies to gain more insight into this new phenomenon and possible issues that may arise. At the same time, effective enforcement can only be designed in an international context, according to the Dutch State Secretary. This research also looks at crypto transactions carried out in the shady side of the economy. An important development in this respect is the new 5th EU anti-money laundering Directive which contains identification obligations as well as other rules for trading platforms and other providers of cryptocurrency services. Further information on the Dutch tax treatment of cryptocurrencies will be published on the website of the tax authorities.
Newsflash | 25/07/2017
183-days rule not limited to actual working days in the work state
OECD’s physical presence method is determinative!
The Hague: 14-07-2017. The Dutch Supreme Court declares the appeal in the cassation of the Secretary of State to be justified. As days of presence in the state of activity do not count only the days actually worked in that state. All other days that the taxpayer was present in that state and who had any connection with the work executed there, do also count for this matter.
Taxpayer B is a resident of Belgium. He is a director and sole shareholder of X BVBA, a company established in Belgium, active in architectural project management. In 2009 B worked for X BVBA for a total of 181 days in the Netherlands on behalf of a contract concluded between X BVBA and the Dutch (ultimate) service recipient. B traveled on his working days from his home in Belgium to the workplace in the Netherlands. B received a salary of € 57,600 from X BVBA in 2009. The inspector is of the opinion that the Dutch fictional wage scheme applies and therefore increases the wage of B to a fixed percentage (80%) of the (net) annual result of X BVBA over 2009.
In dispute is whether the Netherlands is entitled to tax the remuneration of X on the basis of the double tax treaty concluded between the Netherlands and Belgium and, if so, whether the attributed Dutch income of X can be taxed under the rules of the Dutch fictional wage scheme of Article 12a of the Dutch Wage Withholding Tax Act 1964.
According to the courts the Netherlands was not entitled to tax B on this deemed income because the 183 days rule was simply not met. B stayed in the Netherlands for only 181 days in connection with his work. According to the court, a reasonable explanation of the treaty implies that days spend in the Netherlands for private purposes should not count under the 183 days rule.
The Dutch State Secretary went into cassation. The Supreme Court ruled that the court has applied an incorrect test in it’s assessment of the number of days B stayed in the Netherlands. As days present in the state of activity do not count only the days actually worked in that state. All other days spent by B in the work state connected to his work, such as Saturdays, Sundays, National Holidays, Vacations and days off, before, during or after termination of the work or short breaks, do also count in this respect.
The Supreme Court referred the case back to the lower court for a further investigation into the number of days that B was present in the Netherlands. If the referral court judges that B stayed in the Netherlands for more than 183 days, the question arises whether the fictional wage scheme may then be applied. According to the Supreme Council, this is the case since B held a substantial interest in X BVBA, in spite of the fact that X BVBA is established in Belgium. The Dutch fictional wage scheme can be applied irrespective of whether the company is a resident of the Netherlands or not.
An important conclusion is therefore that in the absence of a Dutch wage withholding agent (”inhoudingsplichtige”), a remuneration derived from an employment carried out in the Netherlands, depending on the applicable tax treaty, may still be subject to Dutch personal income tax in the hands of a foreign national not residing in the Netherlands.
Substantial shareholders of foreign entities with a working presence in the Netherlands be careful! There are however a few proven ways to circumvent this outcome!
Supreme Court, July 14, 2017, ECLI:NL:HR:2017:1326
Newsflash | 17/07/2017
Value Added Tax
Letterbox address on invoice does not limit a taxpayer’s right to deduct input VAT
ECLI: EU: C: 2017: 515
Opinion Advocate General Wahl CJEU joined cases C-374/16, C-375/16
Common system of value added tax – Directive 2006/112/EC – Article 178(a) – Right of deduction – Conditions of exercise– Article 226(5) – Details required on invoices – Address of the taxable person – Good faith meeting the requirements for deduction of input tax – Evasion of the law or abuse of rights – National procedures – Principle of effectiveness
RGEX GmbH is a limited liability company trading in motor vehicles. The company has been in liquidation since 2015. In the 2008 VAT return RGEX declared tax-exempt Intra-Union supplies of motor vehicles to buyers in other EU Member States, as well as a tax deduction of approximately € 2 million relating to motor vehicles obtained from EXTEL GmbH.
The competent Finanzamt (Tax Office, Germany) however did not agree with the return. The Intra-Union supplies of motor vehicles to Spain which had been declared as tax-exempt were found taxable, on the ground that the motor vehicles in question had not been delivered in Spain, but had been sold in Germany instead. According to the tax authorities, the corresponding input VAT charged on the invoices issued by EXTEL was not deductible, because EXTEL was a ‘ghost company’, which did not have any establishment at the address mentioned on the invoice.
Mr Igor Butin runs a car dealership in Germany. He claimed VAT deduction based on invoices for a number of vehicles he bought from company Z. The vehicles were purchased for the purpose of resale. Since the supplier Z operates exclusively through the internet, the vehicles were delivered to Mr Butin either in the street where Z has its corporate seat, or at public locations, such as railway station forecourts.
The German tax authority is of the opinion that the VAT charged on the invoices from Z is not deductible because the supplier’s address stated on the invoices is incorrect. Nothing at the stated address would indicate the presence of an undertaking: the address in question was only a letterbox where Z only fetched his mail.
the Bundesfinanzhof (Federal Finance Court) as the referring court, decided to uphold the proceedings and to refer the following questions to the CJEU for a preliminary ruling:
- Does Article 226(5) of [the VAT Directive] require the taxable person to indicate an address at which he carries [out] his economic activities?
- If the answer to question 1 is in the negative,
- Is a letterbox address sufficient as an indication of address pursuant to Article 226(5) of the VAT Directive?
- Which address must a taxable person who operates a business undertaking (in the internet trade, for example) with no business premises indicate on an invoice?
A-G Wahl concludes that Article 226(5) of the VAT Directive precludes national legislation that subjects the right to deduction of value added tax to the indication on the invoice of the address where the issuer carries out its economic activity.
Furthermore, the Advocate General considers the German legislation, according to which, where the formal conditions of invoices are not fulfilled, deduction is granted only if the taxable person proves that he took every measure that could reasonably be required of him in order to satisfy himself that the content of the invoice was correct, in violation of the VAT Directive.
Newsflash | 28/06/2017
Deemed Dutch fictional wage for Director of British Ltd.
The Amsterdam tax court ruled previously that X Ltd, a company incorporated under British law, was actually considered to be Dutch resident. A held a substantial interest in the share capital and has also been performing work for X Ltd., the tax inspector was right in imposing an additional wage tax assessment to X Ltd. for a deemed fictional wage (‘gebruikelijk loon’) on behalf of A.
C was engaged into a tax advisory practice until 2003. Due to a conflict with the landlord of his business premises, C got involved in a series of legal procedures. This resulted into a debt of approximately € 450,000. Appellant, X Ltd. was established mid-2003. The shares of X Ltd. were held by Z Trust.
X Ltd. is the managing partner of B cv, an open partnership, located in the Netherlands. B cv provides tax and legal services in the Netherlands. A is the spouse of C, the statutory director and current account holder of X Ltd. The activities of B cv were carried out by C. Following a tax audit, the tax inspector imposes an additional wage withholding tax assessment to X Ltd for a deemed fictional wage on behalf of A. According to the inspector, X Ltd. should be considered a withholding agent (‘inhoudingsplichtige’) for Dutch wage tax purposes.
The Court of Amsterdam first established that in the year concerned X Ltd. was actually located in the Netherlands for tax purposes. According to the court the management of X Ltd was exclusively provided by A. Since A lived in the Netherlands, the actual seat or residence of X Ltd. is allocated to the Netherlands. Since A was considered to have a deemed fictitious employment, X Ltd. was required to withhold Dutch wage tax and remit this to the Dutch tax authorities. The court hereby considered that A was a registered director of X Ltd., and that she was actually engaged in the operation of the business. The court did not find any evidence that X Ltd. was run by someone else than A.
Since A held a substantial interest in X Ltd and she also performed work for this company the tax inspector was right in taking into account a deemed fictional wage of € 40,000 in the year concerned. According to the court it is justified to maintain that A indirectly through Z, held the shares of X Ltd.
Decision Supreme Court
The appeal against the decision by the Amsterdam court was briefly dismissed by the Dutch Supreme Court on the grounds of Article 81 (1) of the Dutch Judicial Organization Act. If the Supreme Court finds that an appeal cannot lead to cassation and does not require a response to legal issues needing to be addressed in the interests of legal unity or the development of the law, he may limit himself to the judgment in the grounds of his decision providing no further justification.
Please refer to the deeplink below for the full text of the decisions.
Hoge Raad, 23 juni 2017, ECLI:NL:HR:2017:1140
Hof Amsterdam, 4 August 2016, ECLI:NL:GHAMS:2016:3277
Newsflash | 03/03/2017
Member States may not refuse VAT zero-rating for intra-Community supplies in bonafide cases
CJEU 09-02-2017 Euro Tyre C-21/16
On 9 February 2017 the Court of Justice of the European Union (CJEU) delivered its judgement in the case Euro Tyre (II) against the Tax Inspectorate of Portugal. The dispute concerns the question whether EU law precludes Portugal from setting formal conditions for the exemptions of an intra-Community supply of goods.
13 Euro Tyre is a Portuguese branch of a company incorporated under Netherlands law, Euro Tyre BV. It is engaged in the import, export and marketing of tyres of various brands for retailers based in Portugal and Spain. In the Spanish market, it sells, in part, directly and, in part, through a distributor, namely Euro Tyre Distribución de Neumáticos SL.
14 The dispute in the main proceedings concerns several sales made during the period between 2010 and 2012 to Euro Tyre Distribución de Neumáticos. At the time of those sales, the latter was registered as a taxable person for the purposes of VAT in Spain. However, it was not yet subject, in that Member State, to the system of taxation on intra-Community acquisitions or registered in the VAT Information Exchange System (the ‘VIES system’). It was not until 19 March 2013 that the Spanish tax authorities granted it the status of intra-Community operator and registered it in that system with effect from 1 July 2012.
15 Euro Tyre declared those sales to be intra-Community supplies and thus exempt under Article 14(a) of the RITI.
16 Following a tax inspection covering the years 2010 to 2012, however, the Inspeção Tributária (Tax Inspectorate, Portugal) considered that the conditions for the exemption provided for in Article 14(a) of the RITI were not met, since, at the time of the sales in question, Euro Tyre Distribución de Neumáticos, was neither registered for intra-Community transactions in Spain nor registered in the VIES system.
17 Consequently, the Tax and Customs Authority made adjustments to the VAT due from Euro Tyre for the years 2010 to 2012 together with interest for late payment.
22 By its questions, which should be considered together, the referring court asks, in essence, whether Article 131 and Article 138(1) of the VAT Directive must be interpreted as precluding the tax authority of a Member State refusing to exempt intra-Community supplies from VAT on the ground that, at the time of that supply, the purchaser, domiciled in the territory of the Member State of destination and who was in possession of a valid identification number for the purposes of VAT in that Member State, is neither registered in the VIES system nor comes under a system of taxation on intra-Community acquisitions of goods. The referring court also asks whether Article 138(1) of the VAT Directive, interpreted in the light of the principle of proportionality, precludes such refusal where the vendor was aware of the circumstances of the situation of the purchaser with regard to the application of VAT and was convinced that subsequently the purchaser would be registered as an intra-Community operator with retroactive effect.
24 Under Article 138(1) of the VAT Directive, Member States are to exempt supplies of goods dispatched or transported to a destination outside their respective territories but within the European Union, by or on behalf of the vendor or the person acquiring the goods, for another taxable person, or for a non-taxable legal person acting as such in a Member State other than that in which dispatch or transport of the goods began.
29 Neither Article 138(1) of the VAT Directive nor the Court’s case-law, however, mentions — as one of the substantive conditions, listed exhaustively, for an intra-Community supply — the obligation for the purchaser to have a VAT identification number (see, to that effect, judgment of 6 September 2012, Mecsek-Gabona, C‑273/11, EU:C:2012:547, paragraph 59) nor, a fortiori, the obligation for the purchaser to be registered for the purpose of carrying out intra-Community transactions and to be registered in the VIES system.
32 Accordingly, neither the acquisition by the purchaser of a VAT identification number valid for the purpose of carrying out intra-Community transactions nor the inclusion of that number in the VIES system constitute substantive conditions for exemption from VAT of an intra-Community supply. Those are merely formal requirements which cannot undermine the vendor’s entitlement to exemption from VAT where the substantive conditions for an intra-Community supply are satisfied (see, by analogy, judgments of 6 September 2012, Mecsek-Gabona, C‑273/11, EU:C:2012:547, paragraph 60; of 27 September 2012, VSTR, C‑587/10, EU:C:2012:592, paragraph 51, and of 20 October 2016, Plöckl, C‑24/15, EU:C:2016:791, paragraph 40).
38 It must be noted that, according to Court’s case-law, however, there are only two situations in which the failure to meet a formal requirement may result in the loss of entitlement to an exemption from VAT (see, to that effect, judgment of 20 October 2016, Plöckl, C‑24/15, EU:C:2016:791, paragraph 43).
39 In the first place, the principle of fiscal neutrality cannot be invoked for the purposes of an exemption from VAT by a taxable person who has intentionally participated in tax evasion which has jeopardised the operation of the common system of VAT (see judgment of 20 October 2016, Plöckl, C‑24/15, EU:C:2016:791, paragraph 44 and the case-law cited).
41 In the present case, the sole fact, referred to by the referring court, that the vendor, on the one hand, was aware of the fact that at the time of the transactions the purchaser was neither registered in the VIES system nor comes under a system of taxation on intra-Community acquisitions and, on the other hand, believed that the purchaser would subsequently be registered as an intra-Community operator with retroactive effect, cannot be grounds for the national tax authority to refuse to grant an exemption from VAT. It is clear from the documents submitted by the referring court and noted in paragraph 20 above that there was neither tax evasion nor tax avoidance on the part of Euro Tyre.
42 In the second place, non-compliance with a formal requirement may lead to the refusal of an exemption from VAT if that non-compliance would effectively prevent the production of conclusive evidence that the substantive requirements have been satisfied (see judgment of 20 October 2016, Plöckl, C‑24/15, EU:C:2016:791, paragraph 46 and cited case-law).
43 In the present case, as is apparent in essence from paragraph 26 above, the questions referred are based on the premiss that the material conditions for an intra-Community supply within the meaning of Article 138(1) of the VAT Directive have been fulfilled. Moreover, nothing in the file submitted to the Court indicates that the infringement of the formal requirement at issue in the main proceedings prevented the conclusion being reached that those conditions were indeed fulfilled. It is, however, for the referring court to carry out the necessary verifications in that regard.
44 In the light of the foregoing considerations, the answer to the questions referred must be that Article 131 and Article 138(1) of the VAT Directive must be interpreted as precluding the tax authority of a Member State from refusing to exempt an intra-Community supply from value added tax on the sole ground that, at the time of that supply, the purchaser domiciled in the territory of the Member State of destination and who was in possession of a valid identification number for the purposes of VAT in that Member State is neither registered in the VIES system nor comes under a system of taxation on intra-Community acquisitions of goods, where there is no sound evidence pointing to the existence of fraud and it is established that the basic conditions of the exemption are fulfilled. In that case, Article 138(1) of the VAT Directive, interpreted in the light of the principle of proportionality, also precludes such refusal where the vendor was aware of the circumstances of the situation of the purchaser with regard to the application of VAT and was convinced that subsequently the purchaser would be registered as an intra-Community operator with retroactive effect.
Member States may not refuse to exempt intra-Community supplies from VAT in bonafide cases. Zero-rating for intra-Community supplies for value added tax is available whenever the following material tests are met:-
- There is a supply of goods;
- To a taxpayer (or a non-taxable legal person acting as a taxpayer) in a Member State other than that in which dispatch or transport of the goods began;
- the goods are transported or dispatched within the EU.
The CJEU repeats these simple condtions under paragraph 24.
In the Netherlands article 12(2)(a)(1) of the Dutch Implementation Decree of the VAT Act 1968 requires a Dutch taxpayer to have the VAT identification number of the person who receives the goods as a condition for zero-rating. This seems to be a dead letter now based on this CJEU jdgement.
There may still be dark clouds ahead with the recent initiatives from the ECOFIN Council of 7 October 2016, (12764/16) to make a VAT-identification number a condition for zero-rating on intra-Community supplies due to the so-called VAT carousel evasion. So, taxpayers as long as you are bonafide you should benefit from zero-rating for intra-community supplies. Be careful however because the invoices and the tax reporting requirements (e.g. listing) should still comply with certain formalities.