Letter from the Secretary of State for Finance

House of Representatives of the States General 2 Meeting Year 2022—202331 066 Tax Service No. 1262LETTER FROM THE SECRETARY OF STATE FOR FINANCETo the President of the House of Representatives of the States General The Hague, July 5, 2023In the past period, I have spoken to your House at various times about the Combiteam Approach Facilitators (CAF) and the role and working method of this team within the tax authorities. In response, among other things, to questions from Mr. Omtzigt, I informed your House in my letter dated 25 January this year that it would be desirable to have full clarity about the investigations and working methods of the former CAF team.1 After an award, KPMG started this investigation in February, and with this letter I am offering your House report in response to the first part of the investigation. The second part of this study is expected to be completed by the end of this year. With this research, KPMG has come to a number of initial findings about the positioning and working methods of the CAF team. However, based on this first part of the study, no conclusions can yet be drawn about how the CAF team worked in practice. This can only happen when, in the second part of the investigation, the CAF files have been tested based on an assessment framework drawn up by KPMG. Once this review has taken place, there will be better insight into the way the CAF team works. In this letter, I will discuss the findings of this first part of the research.The investigation In February 2023, KPMG started investigating how the former CAF team works. The researchers were provided with all CAF files as archived at the tax authorities. In addition, KPMG requested documentation, which was made available with the help of the relevant directors. KPMG also held interviews with the various stakeholders in the former CAF team. The research consists of two parts. Part Ia describes the working methods and governance of the CAF team. In part II, the files1Parliamentary Paper 31 066, No. 957.KST-31066-1262ISSN 0921 - 7371 The Hague 2023House of Representatives, 2022—2023 meeting year 2022—2023, 31 066, No. 1262 1 are then reviewed on the basis of an assessment framework drawn up by KPMG (part Ib). The research will be completed in two parts because the content of the CAF files is more diverse than expected and their review takes longer than expected. The report resulting from the first part of the investigation is ready and I share it with your House with this letter. The central question within part Ia of the study is: “In what structure and under what safeguards did the CAF operate/function within the tax authorities?” This investigated what the CAF team was hanging within the tax authorities, how the management was arranged and what actions the CAF team carried out.Distinguish CAF team and CAF casesIn this investigation, it is important to be aware of the difference between the CAF team itself and the fee-related issues that are also referred to as CAF cases, which were previously investigated by the Donner2 Committee2 and by the ADR.3. It is also important to emphasize that, in addition to studies on Surcharges, the CAF team also investigated other topics. As a result of research, the CAF team offered signals from research to, for example, Supervisory Boards, Individuals and SMEs for succession. This method is further explained in the study and in this letter. “CAF cases” is the name used by some directors when it was decided by a management to further investigate signals from the CAF team. Within Surcharges, all investigations launched by Surcharges into possible abuse or improper use of surcharges in an organized context were initially documented with a reference to the word “CAF”. However, the CAF team was not involved in all studies with this CAF attribute of Surcharges. In this case, the “CAF” attribute in Surcharges should not be confused with the CAF team at the Tax Administration.Establishment and suspension of CAF In 2013, there was great political and social unrest after the revelations about so-called Bulgarian fraud and several other cases of fraud. The political and social image at the time was that there was large-scale fraud with benefits, and that a firm approach to combating fraud was the right way to stop this. In a letter to the House on 4 May 20134, the then Secretary of State wrote about the measures that had already been taken to combat systemic fraud. In response to this strong policy focus on combating fraud, the DG Tax Administration decided to set up a Fraud Management Team (hereinafter: MT Fraud) .5 The MT Fraud was established in mid-2013 as an addition to the tax authorities management team. The MT Fraud chaired the DG Tax Administration and as members the directors of the following departments of the tax authorities: Customs, Taxation, Fees, FIOD, Central Administrative Processes, Information Provision, Tax and Legal Affairs6 and later IN2Appendix to Parliamentary Paper 31 066, No. 6084 Parliamentary Paper 17 050, No. 4325 In the 2003 Tax Administration Implementation Regulation (as it reads in the period 2013). up to 2018), it has been regulated that the tax authorities are headed by the Director General of the Tax Administration , assisted by a management team (the tax authorities management team) .6In the report and in this letter, the most recent name of service components was used as much as possible to increase the readability of the report.House of Representatives, meeting year 2022—2023, 31 066, No. 1262 2nd time: the Tax Telephone. In addition, a number of fraud coordinators from (the executive) service units and the CFO of the Tax Administration participated in the MT Fraud. The investigation shows that in August 2013, the MT Fraud decided to set up a multidisciplinary team: the Combiteam Approach Facilitators (CAF). The team's goal was to disrupt and stop fraud as early as possible with targeted supervision of possible facilitators. Facilitators were defined as individuals or organizations who, in an organized context, falsely pay fees or taxes. The CAF team was operational from September 2013. The CAF team was a multidisciplinary partnership of various professionals working at various administrations of the tax authorities. These professionals worked together in a CAF context while maintaining their own role, responsibility and powers (mandates) and within the applicable frameworks. The CAF team consisted of two team leaders, a core team, a permanent shell and a flexible shell. At the end of 2013, the joint CAF team (the core, permanent and flexible shell of the CAF) consisted of approximately thirty members. One team leader worked full-time for the CAF team; for the other core and shell team members, this was a task in addition to their position at a service unit of the tax authorities. In 2013, the CAF team was administratively positioned under the MT Fraud. The General Director of Taxation, a member of the MT Fraud, was the responsible director of the CAF and (if necessary in coordination with the MT Fraud) determined the course of the CAF team. The General Director of Taxation had no (mandated) authority as an administrative body (inspector, recipient or Tax Authority/Surcharges) to interfere with individual files. In addition, from September 2013, there was a supervisor group, also consisting of various (general) directors7, who met biweekly with the CAF team leaders to discuss the activities. The investigation shows that management was widely familiar with the activities of the CAF team. It is also visible that there were regular reports on the activities of the CAF at the MT Fraud and the guidance group. The CAF team reported to the MT Fraud via updates to the General Director of Taxation and to the Director of FIOD; to the latter, in particular, about newly identified fraud patterns. The supervisor group was also kept informed about activities and bottlenecks via informal weekly reports. The investigation also shows that the CAF team only makes a limited contribution to the MT Fraud's reporting. No formal record has been found of the establishment of the supervisor group. No minutes were taken of the meetings with the supervisor group itself either. This means that the traceability of decisions and discussions about the activities of the CAF team is limited. The investigation shows that speed was needed when setting up the CAF team and that it was originally assumed that the CAF team would be temporary for one year. The research indicates that this has meant that the team's structure and guarantees were only developed in outline, and were gradually further implemented. In 2014, the MT Fraud decided to continue the work of the CAF team as a result of positive evaluations. When it was decided in 2015 to invest the tasks of the MT Fraud with the MT Tax Administration, it can be seen that the CAF team came on the agenda less often. The positioning of the team also underwent several changes during this period.7The National Director of SMEs, the National Director of Private Individuals, the Director of Technology and a policy officer from the General Director of Taxation.House of Representatives, meeting year 2022—2023, 31 066, No. 1262 3 due to reorganizations within the tax authorities (not related to the CAF team) that caused the management of the CAF team to change. Despite this changing positioning, it is clear that the CAF team functioned under the MT Fraud, and later directly under the MT Tax Administration, both led by the DG Tax Administration and did not act independently. Based on the investigation, the image emerges of a relatively informal organizational structure, with little formally established documentation. I do not consider it desirable that a team with these specific tasks had such an informal embedding in the organization, and the traceability of the team's decision-making and management seemed to be limited. These are also conclusions that have previously emerged from the Borstlap-Joustra Committee about the culture at the tax authorities in the wider area during this period, which talks about an “informal approach that was common at the top of the tax authorities also means that the method of decision-making afterwards cannot be traced back” .8 The committee also concluded that informal forms of communication prevailed. Although the Borstlap-Joustra Committee draws conclusions about the culture and working methods at the tax authorities in general, the documentation concerning the CAF team is another example of the conclusions reached by the Commission. The Borstlap-Joustra Commission has also made recommendations on improving decision-making and information flows and recording them with the tax authorities, which have been adopted. The Commission also pointed out, among other things, that decision-making and important communication should take place via formal documents, precisely in order to prevent ambiguities about this at a later time and to be able to adequately supervise the tax authorities.Working method and mandate of the CAF teamThe KPMG research also provides insight into the objectives and working methods of the CAF team. The report shows that the CAF team was set up with the aim of “disrupting and stopping fraud at the earliest possible stage” with targeted supervision of potential facilitators. The CAF team investigated signals from various sources, including: focus on a facilitator (not on individual beneficiaries and taxpayers), combining multiple sources of information and powers (within the tax authorities), data analysis and on-site research. The follow-up of the findings and any advice from the CAF team took place within the service units. The relevant director of the service unit was therefore responsible for the follow-up that was or was not given to this advice. The ADR investigation, for example, shows that in fee-related CAF cases, the assessment of a concrete internal or external signal related to a facilitator.9 As a result of an investigation, the CAF team then returned the findings or any (non-binding) advice to the relevant service unit for possible follow-up. After that, in the benefit-related CAF cases, decision-making took place within the Department of Allowances regarding applications from individuals. This process is confirmed in the investigation by KMPG by the then Director of Benefits, who states that the work that came to Surcharges via the CAF team was carried out by its own Supplements team, the IST team (special teams within Supplements that, among other things, followed up on the CAF team's findings). This is in line with the results of the aforementioned ADR report, in which 8 Appendix to Parliamentary Paper 31 066, No. 330. 9 Appendix to Parliamentary Paper 31 066, No. 608 House of Representatives, 2022—2023 meeting year, 31 066, No. 1262 4 states that citizens' right to a supplement assessment took place in an IST or Fraud Team of Benefits, and therefore not with the CAF team of Surcharges. the Tax Administration. The various starting documents talk about the necessary “perseverance” on the part of the CAF team. At the same time, the investigation shows that the CAF team's activities were formally organized. The CAF team was not an independent organizational unit, and therefore had no specific organization-oriented mandates, roles or powers. However, it is possible that an employee from the CAF team was involved in a CAF file, and was subsequently involved from the service unit in monitoring the findings and any advice from the CAF team. The study shows that it was not always clear whether people who were part time part of the CAF team performed work from the CAF role or from the role of the service unit. This question will be included in part two of the study, in which the CAF files are tested against the assessment framework. Depending on their position in the service units under which they remained covered, members of the CAF team had the mandated authority to make decisions on behalf of an administrative body (inspector, recipient or Tax Authority/Surcharges) in individual cases and to act within the applicable frameworks. The investigation shows that the CAF team did not elaborate on the existing frameworks through rules, manuals, or instructions. Members of the CAF team were therefore expected to work according to the existing standards and frameworks resulting from the mandate they had. The investigation shows that the recorded documentation does not show whether further agreements have been made about this. For example, no further instructions were found for preparing files, because the existing rules and frameworks were used for this purpose. Because the CAF team did not have an organizational mandate, the responsibility for the work of the CAF employees lies with the director of the relevant service unit from which they obtained their mandate. The investigation shows that the MT Fraud had a strong focus on the (to be achieved) results of the team. For example, the CAF team's evaluation strongly highlights the team's positively assessed initial results and findings. It discusses how the results for 2014 (and beyond) could be improved, with a focus on “moving forward” and “taking efficient measures to stop facilitators”. In the review of the evaluation, the question is asked whether the approach should not be further expanded and can be applicable to other topics. The investigation does not show whether the tools (the “recipe book”) or the way the CAF team works were questioned. The available documentation does not determine whether critical questions have been asked about how selections were made or studies were conducted. After completion of part two of the study, there may be more clarity as to whether there was reason to do so. Finally, the study shows the task of allowing the team to work experimentally, as long as the experiments were known and coordinated with the MT Fraud. In the details of the starting document, an explicit assignment was given to push the boundaries, be creative, “try out things that are not commonplace”, and to use methods whose “legal frameworks have not fully crystallized yet”. The plan of action states “If it is not clear in advance that something is not possible under the current House of Representatives rule, meeting year 2022—2023, 31 066, No. 1262 5, we will do it.” In addition, the investigation states that the safeguarding of these borders took place through the advice of the formal legal experts in the CAF team who were part of the technical infrastructure. In addition, the Director of Professional Technology participated in the guidance group in his role as advisor, with the MT Fraud being responsible for the decisions made. In response to the investigation, the former CAF team also states that no borders were crossed. As a management, I consider it risky to encourage a team to push boundaries. To ensure that employees perform their work within the limits of the law, a good organizational structure and guarantees must be in place. In this way, borders can be monitored and dilemmas can be discussed in the appropriate forum. When reviewing the CAF files in the second part of the investigation, more clarity can be gained about how the CAF team actually carried out work.ConclusionI am grateful to KPMG for this first part of the research, which provided a better insight into the way the former CAF team works and timeline. The CAF team's activities have been stopped since July 3, 2020. The research provides a picture of a team whose suspension and control changed with the reorganizations during this period. Decision-making and discussions about the team are limited. This was part of an informal culture at the tax authorities. The investigation also shows that the role of the CAF team was formally limited to examining supplied signals and issuing non-binding advice to the service unit concerned. With today's knowledge, I do not think it is desirable that a team with such a specific assignment should have only limited decision-making and control over their work. Although this first part provides an insight into the governance and working methods of the CAF team as a whole, based on the documents recorded, for example, it cannot be concluded whether the actual execution of the work by the CAF team was the same as the stated ambition in the starting documents. That is why it is important that the second part of the research is also carried out before conclusions can be drawn. In the second part of the investigation, the CAF files will be tested against an assessment framework to be developed by KPMG, so that it is possible to understand the specific activities that the CAF team carried out, the recording in the files, and the advice that the CAF team gave for monitoring these files. Once this investigation has been completed, it can be concluded with more certainty how the CAF team worked in implementation. As a result of this second part of the investigation, definitive conclusions will also be drawn about how the former CAF team works. In addition, I note that the investigation will be limited to the activities of the CAF team, and will not address the follow-up given to the CAF team's advice by the service units and the consequences that this follow-up had for citizens. I expect to be able to share the second part of the investigation with your House by the end of this year. The Secretary of State for Finance, M.L.A. van RijTweede Kamer, meeting year 2022—2023, 31 066, No. 1262 6