VOLUNTARY DISCLOSURE AND THE HUNT FOR UNDISCLOSED ACCOUNTS BY US AND DUTCH TAX AUTHORITIES

Propaganda machines up to speed

Publicity efforts by the US and Dutch tax authorities indicate that the hunt for undisclosed accounts in typical offshore jurisdictions is still a hot item. Although Curacao was not mentioned by the US authorities, the Dutch tax authorities announced a new search for undisclosed accounts in Curacao based on information provided by the French tax authorities. The IRS announced a new voluntary disclosure program which mitigates the risk of criminal prosecution in exchange for paying taxes, interest and a standardized penalty. Furthermore, the IRS announced that they will follow ‘new leads’ emanating from voluntary disclosures. It may be concluded that the propaganda machines of the US and Dutch tax authorities are (again) up to speed!

In 2006 and 2007, a former employee of a Swiss bank copied client information which was subsequently handed over to the French authorities in 2009. A similar scenario occurred in Liechtenstein, where an employee of a bank sold information to the German tax authorities.

The information handed over to the French authorities was shared with the Dutch tax authorities. Apparently the information also pertained to private foundations on Curacao. The Dutch tax authorities are now searching for private funds transferred to private foundations located on Curacao. The penalties that may be imposed in the Netherlands on Dutch taxpayers with undisclosed funds may be as much as 300% (in case of recidivism).

As of 1 January 2010, private foundations located in Curacao are considered to be fully transparent from the perspective of income tax in the Netherlands. Hence, funds held and owned by the private foundations, are allocated to the (Dutch) taxpayer who transferred the funds to the private foundation. If this person is deceased, the funds are allocated to the heirs of the deceased. If the assets of a private foundation consist of undisclosed accounts then wealth tax is due at an effective rate of 1.2%.

Before 1 January 2010, the funds of a private foundation could only be allocated to a Dutch taxpayer if (i) the person who transferred the funds still controlled the funds as if he (or she) owned the funds, or (ii) if a Dutch taxpayer had (conditional) rights to the funds of the private foundation. If the Dutch taxpayer had no actual or legal rights to distribution or to (part of) the funds of the private foundation (but just a ‘mere expectation’; in Dutch: blote verwachting) they could not be allocated to him or her. It is important to note that these criteria need to be analyzed based on all relevant facts, circumstances and the legal documentation. If the analysis leads to the conclusion that also before 1 January 2010 a Dutch tax obligation existed then a voluntary disclosure is highly recommended. This mitigates the risk of criminal prosecution and limits the amount of the maximum penalty (30%) in the Netherlands.

Needless to say that the above should be carefully considered by directors of private foundations (especially if a request for information is received from the Curacao or Dutch tax authorities).

Jeroen Starreveld
Partner / Tax Adviser

(2 February 2011)

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