THE BOTTOM LINE
- Minimum Director Salary is Non-Negotiable: Paying a director-shareholder a salary far below the established norms (€46,000 in 2020) is a major red flag for Dutch tax authorities, who will likely correct the income upwards to the statutory minimum.
- Unexplained Cash is Assumed Income: Substantial, unaccounted-for cash deposits into personal or company accounts will be treated as undeclared income by tax inspectors, placing a heavy burden on the individual to prove a non-taxable origin.
- One Mistake Can Reverse the Burden of Proof: Admitting to a single significant error in a tax return—in this case, failing to declare the private use of a company car—can cause a court to reverse the burden of proof, requiring the taxpayer to prove the tax authority’s assessment is unreasonable, rather than the other way around.
THE DETAILS
This case serves as a stark reminder of the strict compliance landscape for director-shareholders in the Netherlands. The dispute arose after a 100% shareholder declared an annual income of just €12,000 for his work. The Dutch Tax Authority rejected this figure, arguing it fell foul of the “gebruikelijk loon” (director’s deemed salary) regulations. These rules are designed to prevent directors from avoiding higher income tax rates by paying themselves an artificially low salary and extracting value through other means, such as dividends. The authority adjusted his income by adding €34,000 to meet the minimum threshold and tacked on an additional €25,000 attributed to unexplained cash deposits.
The critical turning point in the proceedings came when the shareholder admitted during the hearing that he had failed to declare the taxable benefit for the private use of a company car. While this might seem like a separate issue, the court viewed it as a fundamental flaw in the tax return. This omission was significant enough for the court to trigger the “reversal and heightening of the burden of proof.” This powerful legal mechanism effectively flips the script: instead of the tax inspector needing to justify their assessment, the taxpayer must provide conclusive evidence that the inspector’s calculations are unreasonable and incorrect.
With the burden of proof reversed, the shareholder’s defence crumbled. He was unable to convincingly prove that the company lacked the financial capacity to pay a higher salary or provide a legitimate, non-taxable source for the various cash deposits. The court found the tax authority’s income estimates, including the corrections for the deemed salary and unexplained funds, to be a “reasonable estimate.” As the shareholder could not meet the heightened standard of proof to demonstrate the assessment was excessive, the court upheld the tax authority’s position in full, leaving the director liable for tax on a significantly higher income.
SOURCE
Source: Rechtbank Gelderland
