Tax authorities can help prevent unnecessarily high debts

• Public management
• Self-employment

Research by the Tax, Surcharges and Customs Inspectorate shows that too high estimates of income are often the starting point of problematic debts. Inspector researcher Lenemieke Goossens calls for more understanding and better judgment by the tax authorities.

By Lenemieke GoossensSeptember 5, 2024

The Tax, Surcharges and Customs Inspectorate is an independent supervisor that examines whether the government treats people fairly and properly when they have to deal with taxes, surcharges or customs matters. The inspectorate was set up in 2022 as a result of the benefits affair and fraud reports by the tax authorities. She identifies, investigates and puts issues in services on the agenda from the perspective of people and companies. Signals from professionals about concrete practical problems are an important source for us to determine where things are structurally not going well. This is how we determine where we can be most effective.

The tax authorities often knock on the door of people with problematic debts

This year, we completed a study into how the tax authorities are dealing with problems of citizens and freelancers can recognize and (help) solve. What turns out? In people with problematic debts the tax authorities often knock on the door.

Starting point

Our research, both among debtors and the tax authorities, shows that tax assessments based on (too) high estimates of income are often the starting point for problems to arise or get out of hand. The tax authorities impose so-called ex officio assessments if a taxpayer has failed to file the mandatory tax return, such as Mrs. Braam.

She now has a debt of 100,000 euros with the tax authorities

Mrs. Braam opened a store in 2014. She does not file a sales tax return because she had heard that, as a starter, she did not have to do that over the first period. Her income is limited: around 3,000 euros in the first year. Because Mrs. Braam wrongly does not file a sales tax return, the tax authorities estimate her income. One that appears to be much higher than her actual income. Over the first two quarters of 2014, Mrs. Braam will receive an assessment of 10,000 euros. She calls in an administrative office, but that goes awry. The lady falls ill, has no overview and letters escape her. She continues to receive tax assessments with fines from the tax authorities. These are always based on a multiple of her actual income. She is also urged to repay any surcharges received. She gets into more and more trouble and has to sell her house. After a few years, she knocks on the door of a counselor who lists everything for her. Mrs. Braam now has a debt of 100,000 euros with the tax authorities. She opts for a debt relief process because it will get her life on track faster than if she were to compete with the tax authorities.

Implementation

Mrs. Braam's story is not unique. But more importantly, it points to institutional distrust that has grown over time. For a long time, the tax authorities assumed that taxpayers sometimes deliberately did not file a return. By estimating their income highly, the service expected it to be able to encourage that group of taxpayers to file a return after all.

Ex officio assessments and fines from the tax authorities have an effect in other areas.

The problem, however, is that the tax authorities ignored the fact that there may also be other reasons why people do not file a tax return. This mainly includes health complaints, homelessness or difficulty keeping personal administration. Ex-officio attacks and fines from the tax authorities affect other areas. For example, the tax authorities take reporting and payment behavior into account when deciding whether someone qualifies for a deferral or remission of taxes. The high estimate of income also affects schemes that take estimated income as a starting point, such as surcharges, personal contribution plans or legal aid. Because of this accumulation, people's financial problems often become even greater than they already were.

Adaptation

Some of the taxpayers who do not file a return and whose income details are known to the tax authorities are actually eligible for a tax refund (sic). But no attack, that's legal recorded, therefore no refund. So also no or less right to benefits, and a higher income-related personal contribution for health insurance, for example. To prevent this cascade of consequences, the law will be amended next year.

Although the tax authorities are more actively approaching people who have not filed a tax return, it does not reach everyone

The amendment means that the tax authorities always impose an assessment, even if someone is eligible for a refund but has not filed the mandatory return. This then works back to the 2022 tax year. Taxpayers who have not filed a return for the year 2021 will therefore not receive the refund unless they still file their tax returns. Although the tax authorities are increasingly approaching people and companies who have not filed a tax return, it still does not reach everyone. There are still taxpayers who, because they have not filed a return, receive assessments based on estimates of their probable income. We think it is important that the tax authorities, for example with samples, ensure that these estimates are reasonable and do not cause people to get into unnecessary trouble. We also think it is important that the tax authorities find a suitable solution for people who have run into major problems in the past, such as Mrs. Braam. The Secretary of State for Taxation and Tax Administration in the previous cabinet, Marnix van Rij, has response said on our investigation report that the tax authorities are committed to this.Lenemieke Goossens is a researcher at the Tax, Surcharges and Customs Inspectorate. Professionals who want to share their experiences with us can contact us at contact@inspectiebtd.nl.Photo: mystic_mabel (Flickr Creative Commons)