Value Added Tax and jail time can go hand in hand. We try often to get this across to our clients who need to be updated. We are then laughed at by the type of client whom this could concern, hence this article.
Value Added Tax and jail time
The Value Added Tax is the tax the seller/service provider receives on behalf of the tax office. The tax office reasons that this is not your money, it is tax to be paid while the VAT return is filed. A logical process when mathematically explained to you.
The entrepreneur often has a slightly different approach. The VAT is received via payment of their invoices. In the business bank account. Business costs are being paid and the result might not be enough to actually make the VAT payment.
Any action taken that makes not the correct amount of VAT is being reported or paid, is relevant to this article.
Jail time and the Dutch tax office – una via
The Dutch tax office is in the business of collecting tax. The Value Added Tax is collected from companies. The tax office has experience with companies not willing to comply in paying the Value Added Tax.
Normally the tax office issues penalties if you do not comply in any sort of form. Not in this case, no penalties are issued if you deliberately frustrate the VAT process. The reason is that globally we have accepted the Una Via approach to a crime committed. You can only be charged one time for a crime.
Should the tax office have issued a penalty, then the tax office cannot ask for jail time. That does not fit with the una via approach.
Money laundering
Instead of issuing a penalty, the tax office claims that the crime of money laundering was committed. Money laundering is a criminal offence and for a criminal offence you can go to jail. Here comes the jail time.
The moment you do not complete the Value Added Tax return truthfully, the tax office assumes you are not willing to pay what should be paid in VAT. That is regarded money laundering.
Value Added Tax and Jail time – court case
The tax office received a correction VAT return in December 2020 for Q4 2019 showing a turnover of EUR 1.888.845. The original Q4 2019 VAT return showed a EUR 12.434 turnover.
Within hours from the correction VAT return another correction arrived for EUR 12.500 Q4 2019 turnover to quickly be followed by a zero turnover Q4 2019 VAT correction.
The Q4 2020 VAT return filed resulted in EUR 97.648 VAT refund and that was the moment for the tax office to start an investigation. No refunds were paid.
Filing a VAT return incorrectly is a crime, hence the criminal court was asked to join the investigation. The FIOD (tax office crime team) learned during the investigation that the Q4 2020 VAT return was indeed deliberately incorrect filed. Also the Q4 2019 VAT return was confirmed being falsely filed.
Besides these false VAT returns also EUR 100.000 was directly received from a related company on the private bank account of the owner of the company
The criminal court sentenced the entrepreneur to eight months of jail time.
Creativity of clients
Clients can become creative, not taken into account the rules and regulations. The policy we have in the office is to educate the clients about the rules and regulations. The moment the client is not willing to accept such a learning curve, we instantly step down with our activities. The tax advisor can be seen, and often is seen as accomplished party in the criminal court case.
Our rigid response to the suggestions made, always comes to a surprise to our client. The seriousness of our action makes them realize this is an serious issue and stop their creative pursuit.
Entrepreneurs & mistakes
There is a difference between an honest mistake and money laundering. The honest mistake is an honest mistake. You can recognize an honest mistake by the correction instantly done after the mistake has come to light. An adjustment of your VAT return due to such a mistake will not lead to jail time. Maybe a penalty for paying too late.
The accounting skills of entrepreneurs is a development that takes time. Using the expertise of an accountant is a short cut of that time. During such development mistakes can be made. The entrepreneur is also a human being and the tax office gives you to opportunity to correct these mistakes.
Tax is exciting
We think tax is exciting. Jail time we think is not exciting at all. Not only it is a rather traumatic experience we assume. First the entrepreneurs experiences years of investigation, court cases, invoices from lawyers. Then, in this case, eight months of prison time. The moment you get out of prison you will have issues with insurances, bank accounts. For some aspects in life you need a VOG (statement about your behavior) which is denied to you.
