The tax extension rule is a blessing a curse and a liability at the same time. What is this about?
The tax extension rule
In the Netherlands deadlines are set to file the tax return. We have many flavors of tax returns to be filed. Only for the income tax return and the corporate income tax return a proper extension rule is in place.
What deadlines do we have related to the tax extension rule?
The income tax return is to be filed before May 1 following the calendar year. However, there is a rule that if you file that tax return before April 1 even, the tax office promises to pay you the refund before July 1. That is when you expect a refund of course.
The corporate income tax return is to be filed before June 1 or within 5 months finishing the financial year if the financial year does not equal the calendar year.
What happens if you are too late meeting the deadline?
If you are too late with the income tax return, the tax office will send you a reminder. A reminder to file your tax return before a certain date still. If you miss that one, you receive a final warning to file in a ten day period. Have you missed all the warnings, then you can expect a EUR 385 penalty.
Moreover, the tax office is not going to wait anymore and send you an assessment for what they think you should pay in tax. Plus interest.
If you are too late with the corporate income tax return, the tax office will send you a reminder with a date. If you miss that one, you receive a final warning to file in a ten day period. Have you missed all warnings, then you can expect a EUR 5.514 penalty. If this is your first time, often a 50% discount is granted.
Moreover, the tax office will impose an ex officio assessment for what they expect the company needs to pay in tax. Plus interest.
What does the extension rule do?
The extension rule makes that the income tax return May 1 deadline following the calendar year for which the tax return is to be filed, moves to one year later May 1. So you have 12 more months to file.
The corporate income tax return deadline of June 1 following the calendar year is moved to May 31st a year later.
Conditions for the extension rule?
The extension needs to have been requested for before the deadline expired.
The extension can only be applied for if the person or company has not missed more than once the deadline in the passed three year.
The company needs to have filed a preliminary assessment for the year of extension.
The curse of the extension rule
The curse of the extension rule is the confusion over the years. We are now in the year 2024, but if you received extension for the year 2022 income tax, you have a May 1 2024 deadline for the 2022 tax return.
The 2023 tax return you need to file before May 1, 2024 as well, unless you ask again for an extension. In the meanwhile the 2024 year is running and maybe you need to file a preliminary tax return for 2024. In your mind this can be confusing, especially when you are aware you need to pay tax. How is your liquidity flow affected by these tax assessments in the air?
The curse of the corporate income tax return is that you need to file a preliminary assessment. You need to meet the deadline within the extension to prevent the EUR 5.514 penalty. On the other hand the Chamber of Commerce expects the company to publish the annual report not later than max 12 months after the financial year has finished.
The latter implies that if you meet the Chambers of Commerce deadline, you only wait to file the corporate income tax return out of liquidity challenges.
The liability of the extension rule
The liability in the extension rule is quickly addressed to the tax advisor, read: us. Then again, the person and the company have their own responsibility to meet the tax return deadlines. And the moment, within convenience, that the deadline is forgotten and the reminders arrive, then the liability issue is addressed. It is the person or company’s own liability.
How best to approach the extension rule?
We understand the use of the extension rule. May 1 or June 1 can simply be too quick. But extending to the full extend of one year can result in confusion. Hence we recommend to file in June to September period. Then your advisor has time for you to discuss in debt the tax return and you are ok from a liquidity flow perspective.
Tax is exciting
We think tax is exciting. Every year we do our best for the majority of our clients to meet the base deadline. Some do need the extension rule, if we are informed well in time, this is not a problem. Waiting till the very end of the deadline is not recommended by us.
