Supreme Court rules tax interest rate for CIT is too high

The Supreme Court has held that the tax interest rate for corporate income tax (CIT) is excessive. In the case at hand, the tax interest amounted to 8 percent but in subsequent years increased to as much as 10 percent. Tax interest is a levy payable by the taxpayer if the tax inspector issues an assessment that exceeds the amount initially reported by the taxpayer, for example based on an estimate. The Supreme Court has indicated that the tax interest for CIT must be set at the same rate as applies to other taxes, such as personal income tax. In this case, that rate was 4 percent. Tax interest is aligned with movements in the ECB policy rate and therefore varies from year to year. As from 2024, the differential between the tax interest previously calculated by the Dutch Tax Authorities for CIT purposes and the lower rate they must now apply pursuant to the Supreme Court’s judgment is 2.5 percentage points.

Objections to the level of tax interest have been designated as a mass objection procedure (‘massaalbezwaarprocedure’), with timely objections being put on hold and ultimately a collective decision being made on these objections. This procedure concerned tax interest on corporate income tax, withholding tax, solidarity contribution, minimum tax, and the profit share (a mining levy).

There were also cases on the question of whether the interest on tax for income tax and other taxes might also be too high. The Supreme Court has now determined that this interest is not excessive.

The procedure and the judgment

In November 2024, the District Court of Northern Netherlands held that the tax interest on corporate income tax (CIT) assessments was unreasonably high. For several years, the level of this interest has been determined by the Tax and Recovery Interest Decree (Besluit belasting- en invorderingsrente, Bbi). The court declared the Decree, on this point, invalid for conflict with the principle of proportionality (evenredigheidsbeginsel), finding that the adverse consequences of a high interest rate were not proportionate to the objectives pursued by the rulemaker.

The State Secretary for Finance disagreed, and the matter was brought directly before the Supreme Court.

The Supreme Court now likewise holds that the 8 percent tax interest on CIT is invalid, because the relevant provision of the Bbi violates the principles of proportionality and equal treatment (gelijkheidsbeginsel). The Court reduces the rate to the rate applicable to other taxes, such as personal income tax (PIT). As a result, companies subject to CIT are no longer exposed to a heavier tax interest burden than other taxpayers. 

Tax interest on “other taxes”

In view of the many objections also filed in respect of other taxes, the Supreme Court has additionally addressed whether the tax interest rate applicable to those taxes is likewise excessive. The Court assessed, inter alia, compliance with the principle of equal treatment, various nondiscrimination prohibitions, and the principle of proportionality, and it considered the fact that the tax interest rate is subject to a minimum floor. All of these tests lead to the conclusion that the tax interest rate for other taxes can be maintained. Finally, the Supreme Court held that this conclusion also applies for the years from 2024 onwards, when the basis for determining the tax interest rate was changed. In doing so, the Supreme Court has resolved the legal questions raised both in these procecure and in the mass objection procedures concerning tax interest on CIT and on other taxes.