This is a Thought Leadership article by PrimeGlobal firm ABAB which looks at ways in which to avoid unnecessarily high interest on tax.
For companies with a financial year equal to the calendar year, it is soon time to take action to prevent interest on tax on the corporate income tax due. The same applies to individuals who expect to have to pay income tax over 2018.
Our advice is to submit a request to the Tax and Customs Administration in time, at the latest before 1 May 2019, for a provisional assessment of corporate income tax and/or personal income tax for the year 2018.
Interest on tax
The Tax and Customs Administration charges interest if the (provisional) assessment has been delayed too long due to the taxpayer. In other words: interest on tax is a compensation for missed interest by the Tax and Customs Administration. Does a (provisional) assessment show that you have to pay corporate or personal income tax? Then you (the taxpayer) may be liable for interest on that amount. The Tax and Customs Administration calculates interest on tax with effect from 1 July 2019 (the first day after the end of six months after the end of the (financial) year to which the assessment relates). This ends on the day that lies before the day on which the assessment must have been paid at the latest, normally six weeks after the date of the assessment. Is there a split financial year? Then interest on tax is charged from the first day of the seventh month following the end of the financial year. If an assessment is imposed within six months of the end of the financial year, no interest on tax is due.
Interest on overdue tax
In addition, the Tax and Customs Administration charges interest on overdue tax if the taxpayer pays a tax assessment late. The Tax and Customs Administration charges collection interest from the moment the payment term expires (normally six weeks after the date of the assessment) until the day of payment. Always pay your assessments on time!
For corporate income tax, the tax interest rate is aligned with the statutory interest rate for commercial transactions, with a minimum of 8% (!). For other taxes, including personal income tax, and for interest on overdue tax, the statutory interest rate for non-commercial transactions is leading. A minimum rate of 4% applies.
Avoid unnecessary interest on tax!
If you expect your company and/or yourself to be liable for corporate or personal income tax over 2018, it is advisable to take one of the following actions in good time. This way you can reduce the interest on tax or prevent it entirely.
• Request a provisional corporate income tax assessment before the first day of the fifth month after the end of the (tax) year. For a financial year that is equal to the calendar year, the request for the year 2018 must be submitted before 1 May 2019*. In the event of a split financial year, the request must be submitted within four months of the end of the financial year.
• Submit your personal income tax return for 2018 or a request for a provisional income tax assessment for 2018 before 1 May 2019*.
• Is the provisional assessment already imposed too low? Then this must be adjusted before 24 March 2019. The term of fourteen weeks (eight weeks, that the Tax and Customs Administration has to respond to the request, plus six weeks payment term) will then end on 30 June 2019.
• You can also have an excessively high provisional assessment adjusted in order to improve the liquidity position. • As long as there is uncertainty about the amount of the expected taxable amount for 2019,
it is advisable not to set the provisional assessment for 2019 too high. In the course of 2019, but at the latest at the beginning of 2020, you can then estimate the taxable amount for 2019 and subsequently have the provisional assessment for 2019 adjusted on the basis of that estimate.
* If and insofar as the final assessment differs from the provisional assessment, tax interest may as yet be due.
ABAB Accountants en Adviseurs
ABAB is a full-service accounting, tax advisory and consultancy firm. The firm was established in 1924 and, today, has over 700 staff members in 14 offices throughout the southern region of the Netherlands. ABAB’s operations are unique due to our wide range of services and our client-service formulas. We are committed to providing the service most suitable to all our clients, whether they are small or large, national or international-based companies. Our clients are primarily unlisted companies, institutes, organisations in the non-profit sector and high net worth individuals.Learn more