"Be wary of ToT charges" KPMG tax lawyers warn

PHILIPSBURG -- Agents and intermediaries making payments or contracting for clients should be wary of Turnover Tax (ToT) on these charges says KPMG tax lawyers Wendell Meriaan and Suhena Neuman.

"It is quite common that they collect or contract amounts on behalf of their clients," the two said in a joint statement issued on Tuesday.

"The issue is to understand when these charges qualify as recurring charges "doorlopende posten". Recurring charges can be defined as expenses that the entrepreneur makes on behalf of, and for the account of a customer for whom a service is rendered, while these costs are subsequently recharged to the customer. In case these charges do not qualify as recurring charges and thus are part of the fee that is charged for the services rendered, these charges will be subject to ToT.

The tax lawyers gave an example of a situation in which the expenses made are not part of the fee that is paid for the actual services that are rendered to the customer:

"A lawyer who obtains a compensation for damages for his client from a third party and pays this compensation to his client. However, the amounts that the lawyer receives from his client as compensation for telephone, travel and lodging expenses, which are made in his own name, such that there is no direct contractual relationship between the telecommunication provider, the carrier and the hotelkeeper on the one hand and the client on the other hand, do form part of the fee that the lawyer receives for the services rendered. The key question in this regard is therefore: "How do you know when the concerning charges can be considered as recurring charges?

"It finally comes down to the following criteria that need to be examined in order to determine whether the expenses can be considered as recurring charges or not:

- The expenses need to be made in name of, and for the account of the customer.

- Furthermore, these expenses are recharged to the customer.

There are certain expenses that are considered recurring charges and consequently are not an integral part of the fee such as court registry fees and/or enforcement officer fees, which a lawyer has to settle with others for his client, considering that these fees are legally paid in name of and for the account of the client. Bankruptcy charges such as expenses for inventory-taking, valuation and advertising which are made by the liquidator in name of and for the account of the estate are also considered as recurring charges.

"On the other hand, there are expenses which are necessary for rendering the requested service and therefore do not qualify as recurring charges. These expenses are subject to ToT as they are part of the fee that is invoiced for the requested service. For example, advertising cost which are made by the undertaker or official documents that are paid by the notary.

"The foregoing raises the question whether the expenses made are necessary for the entrepreneur to render the requested service. If this is answered affirmatively and these expenses are made for the account of the entrepreneur himself, these charges will generally be part of the final invoice and therefore subject to ToT. "However, in case these expenses are made in the name of, and for the account of the customer, they constitute recurring charges which are not part of the fee that was agreed upon for the requested service. Consequently, these charges will generally not be subject to turnover tax for that matter," the two tax attorneys said.

29 June 2011

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