Track Record: Accountant Liable for Error in Business Sale and Missed VAT Refund

Mr. Vincent Besters represented two private limited companies in liability proceedings against an accounting firm

In June 2015, the Midden-Nederland District Court (Utrecht) issued a judgment in proceedings in which mr. V.M. Besters acted as counsel for two claimant companies. They held their long-standing accountant liable for a series of errors made in connection with the sale of a home care mediation business and the settlement of VAT after that sale.

What was the case about?

One of the claimant companies held all shares in a business providing mediation services in home care. The accounting firm had handled all accounting work for the group for many years.

In 2008, the Dutch State Secretary of Finance decided that mediation services (including in home care) were retrospectively exempt from VAT with effect from 9 February 2006. This meant that the home care company was entitled to a refund of years of incorrectly paid VAT — totalling more than €237,000.

The accountant subsequently also guided the sale of the business in May 2011. The purchase price was set at €94,447. However, what the accountant failed to do was inform the sellers about the possibility of a VAT refund or take it into account when determining the sale price. The buyer claimed these refunds shortly after the acquisition — pocketing over €237,000.

In addition, the accountant made further errors after the sale:

• He filed supplementary VAT returns for 2010 and the period June–September 2011 too late.
• He failed to update the bank account number of the fiscal unity with the Tax Authority in time, causing refunds totalling €25,468 to be credited to the bank account of the already-sold business (and thus to the buyer).
• He incorrectly advised the seller to pay a €7,322 claim from the buyer, which was in fact unfounded.

What did the court decide?

The court held that the accountant had attributably failed to perform on several counts:

• Error in the business sale: The accountant should have informed the sellers of the right to a VAT refund and this should have been reflected in the sale price or deal structure. By failing to do so, the sellers received a far too low price.
• Error with post-sale refunds: By not updating the bank account number with the Tax Authority in time, refunds due to the fiscal unity ended up with the buyer. The court recognised liability for this amount.
• Error with advice on the buyer's claim: The accountant had insufficiently substantiated that payment of the €7,322 claim was justified.

Several heads of damage were referred to follow-on damages proceedings. The claim for repayment of the accounting invoices was partially granted.

What does this mean for entrepreneurs?

This case contains concrete lessons for entrepreneurs who are (thinking of) selling their business:

• Your accountant must advise proactively. An accountant who is (or should be) aware of tax benefits but fails to factor them into advice on a business sale can be liable for the lost value.
• Tax claims are part of business value. VAT refunds that accrued during the period of ownership belong in principle to the seller — not the buyer.
• Administrative errors can have major consequences. Failing to update a bank account number with the Tax Authority may sound trivial, but can result in tens of thousands of euros in losses.
• Check the advice on buyer claims. Do not simply accept that a post-acquisition claim is well-founded — engage a second adviser if necessary.

Case Reference

This post is based on ECLI:NL:RBMNE:2015:3687.

Mr. V.M. Besters acted as counsel for the claimants in this case.