How to prevent paying tax interest to the Tax Authorities
As of 2014 the Tax Authorities are charging a considerable percentage in tax interest for unpaid taxes. For partnership tax you will pay the legal interest for trade transaction, with a minimum of 8%. The tax interest for the other taxes has been equalled to the legal interest for non-trade transactions, with a minimum of 4%. When you have to pay the interest over your taxes, it can cost you a lot of money. Would you like to know what you can do to prevent paying tax interest to the Tax Authorities? We will explain it in this article.
--PAY ATTENTION: temporary arrangement tax interest--
To soften the coronavirus blow on many entrepreneurs, the Tax Authorities has lowered the tax interest to 0,01% temporarily. This decrease will go into effect on the 1st of June 2020. At the moment it is not yet clear when the regular rate will go back into effect. The website of the Tax Authorities has the most actual information in regard to the coronavirus and all (temporary) regulations.
How do you prevent paying tax interest?
Requesting or altering your provisional assessment for the current fiscal year can prevent or limit paying high tax interest. Therefore, make sure you receive a provisional assessment and join this with your (expected) income. Pass on any changes as soon as possible. Because, if your provisional assessment is much lower than the amount, you ultimately have to pay. You will have to pay interest over that last part. Besides, you do not have to pay the whole amount in one go when requesting or altering your provisional assessment. The amount you will need to pay, can be paid in terms until the end of the current fiscal year.
How do you request a provisional assessment?
On the Tax Authorities’ website you can alter or request (both in Dutch) your provisional assessment. When you have requested your provisional assessment, this request will automatically continue in the years following. Do you need support or advice in regard to your (provisional) assessment? Please feel free to contact one of our professionals at Moneywood (see below).
When do you start paying tax interest?
Since 2012 tax interest is calculated when the assessment is imposed after July 1st of the following year. For 2019 that would be July 1st 2020. If there is the matter of a ‘broken fiscal year’, the tax interest is calculated from the seventh month after the fiscal years has ended.
The period over which tax interest is calculated, and when the tax assessment is recoverable. The recovery period differs type of assessment. A regular (provisional) tax assessment has a recovery period of six weeks after the reply date and with a revised tax assessment it is 4 weeks. After these periods the Tax Authorities can calculate collection interest. More information about this interest you can find here.**
Payment of tax interest
You pay tax interest when you received a provisional, definitive or collection assessment after July 1st in the following fiscal year. But only if the assessment could not be submitted earlier because of the person obligated to pay taxes, you are obligated to pay interest. When the cause is due to a delay at the Tax Authorities, you do not need to pay any interest.
Because of the income tax assessment 2019, a definitive assessment has been submitted for the amount of €4.000. The assessment has been sent on June 29th 2020. Because of a provisional assessment, you already paid €3.000 in 2019. The total definitive assessment is then €1.000. However, no tax interest is charged because the assessment had been imposed before July 1st 2019.
Limitation tax interest
The interest calculation period can be limited. First you would require an official form to request a submission of the assessment. Then, the assessment has to be in accordance with the tax declaration. When the Tax Authorities do that, but take too long to impose the assessment, the interest calculation period will be limited.
When is the period too long?
Too long is dependent on the type of assessment. The limited interest calculation period consist of two terms that are added together: the period in which the Tax Authorities have to take action and the period with the payment deadline.
When you requested for an imposement of a provisional assessment or revised tax assessment, the interest calculation term deadline is, at the most, fourteen weeks after the submission of the request (six plus eight weeks). In the case of a revised tax assessment, the interest calculation period is twelve weeks (eight weeks plus the four-week payment deadline). When you submit an assessment, the interest calculation term will end after no more than 19 weeks (thirteen plus the six weeks in which you are supposed to pay the assessment.
This means the request that when the assessment is submitted within four months after the fiscal year and is in accordance with the assessment, you will never have to pay tax interest. When the assessment has been submitted within three months after the relevant fiscal year, you will also never have to pay tax interest.
Receiving tax interest
While it is possible you owe interest to the Tax Authorities, it could also be the case that the Tax Authorities owe you interest. The Tax Authorities only pays tax interest when the assessment has been imposed after July 1st of the following fiscal year and the Tax Authorities take too long to impose the assessment. In addition, the assessment must be in accordance with the submitted declaration and submitted with the correct digital form.
The same periods apply as mentioned in the paragraphs above. The Tax Authorities is late with imposing an assessment when they have not replied with a provisional or definitive assessment thirteen weeks after submission of the assessment. When the person obligated to pay taxes has requested a declaration imposement, the Tax Authorities have another 8 weeks to reply. The interest compensation starts, therefore, eight weeks after receiving the request or thirteen weeks after receiving the tax declaration and ends six weeks after sending the tax assessment.
A tax declaration is submitted on March 15th, for the year 2019. The Tax Authorities imposes the assessment on June 28th based on the declaration. The Tax Authorities took longer than 13 weeks to impose the assessment. But because the assessment is imposed before July 1st, no tax interest is charged.
When the tax assessment is not imposed on June 28th 2020, but on July 28th 2020, the declaration has been submitted in time, but the assessment has been imposed too late. Thirteen weeks after March 15th 2020 is June 16th 2020, so the assessment has been imposed one month and twelve days too late (42 days). The tax interest, however, is only imposed from July 1st 2019, so you only pay tax interest over 28 days.
Limit or prevent paying tax interest
The examples above demonstrate that it is advisable to make sure the paid taxes are tied to the definitive amount of owed taxes. This way you can limit or prevent paying tax interest as much as possible. Another benefit from requesting or altering your provisional assessment, is that you do not have to pay the entire amount in one payment. The owed amount will be debited in terms until the end of the current fiscal year.