Last week there were 2 matters that made me wonder how useful Artificial Intelligence (AI) will be in the field of (tax) law. And more important where important pitfalls might exist by the use of AI in the field of (tax) law. The first was an old judgment of the Dutch Supreme Court that was published on the website of the Dutch Courts. And the second was a discussion regarding AI that I followed on a Sunday morning talk show on Dutch television.

The discussion in the talk show

To start with the latter. A Dutch professor in Strategic Governance of Global Technologies was a guest in the talk show. One of the items that was discussed in the talk show were the possibilities of AI. The professor was explaining that AI is already around for decades. That however over the last couple of years the AI was very good in recognizing patterns, which for example is used for facial recognition to unlock mobile phones or for translating texts from one language into another language. The last couple of years AI has also become capable to generate patterns.

During the discussion the host of the talk show referred to a Goldman Sachs according to which 300 million jobs would disappear in the Western world because AI would make them superfluous. The professor answered that according to him undoubtedly the nature of a lot of jobs will change, but that it is questionable whether they will fully disappear. The talk show host then asked who should worry about their job. He understood that for example lawyers should worry about their jobs since a computer can much quicker and cheaper search the laws for certain articles. The professor stated that indeed the jobs of people who are busy with pattern recognition (like for example gathering information from the texts of laws) and that subsequently have to draft a story based on the information they gathered (pattern generation) will be influenced by AI. He however questioned whether this meant whether the jobs would fully disappear. According to the professor there are still many things that do not go perfect when using AI. He called one of the biggest problems that AI starts to ‘hallucinate’, which he described as AI referring to a source that does not exist. In such case AI creates something that looks completely correct, but which it isn’t. And therefore still checks will have to be made.

What I however missed in the whole discussion is the human dimension. And what I mean with that is that there might be cases in which the strict analysis can be completely accurate but that perhaps based on an ethical standard one should not want to go for the perfect juridical outcome. And that brings me to the old judgment of the Dutch Supreme Court that was published on April 6, 2023 on the website of the Dutch courts. A judgment from 1954 that left me flabbergasted.

The 1954 judgment of the Dutch Supreme Court

On April 6, 2023 on the website of the Dutch courts a judgment of the Dutch Supreme Court from December 12, 1954 was published.

Facts

The taxpayer in the underlying was a woman who had the English nationality. Until December 11, 1942 the taxpayer was a resident of the Netherlands. On December 11, 1942 the taxpayer was deported to Germany as a Jewish resident by the occupying German forces where the taxpayer remained in concentration camps for Jews until her liberation by the Allied forces, after which she returned to the Netherlands on July 25, 1945. After her deportation the taxpayer’s entire assets, including her home and furniture, were confiscated and partially liquidated by or on behalf of the German occupying forces. The taxpayer is a single woman who left no close relatives behind when she was deported from the Netherlands.

The Dutch tax authorities issued a Dutch wealth tax assessment for 1945 amounting to NLG 2,280. This assessment was issued on the assumption that the taxpayer had been a resident of the Netherlands for the whole year 1945.

Contest lodged with the Dutch tax authorities

The Dutch taxpayer lodged a contest with the Dutch tax authorities against the aforementioned assessment. The taxpayer argued that she had not been a resident of the Netherlands for the period from January 1, 1945 until her return on July 25, 1945. She therefore argued that the amount due on the Dutch wealth tax assessment that was issued for 1945 should be decreased to NLG 950 (5/12 x NLG 2,280). The tax authorities rejected the contest lodged.

Appeal lodged with the Court of Appeal

Subsequently the taxpayer lodged an appeal against this decision with the Court of Appeal (Raad van Beroep). The taxpayer again argued that she had not been a resident of the Netherlands for the period from January 1, 1945 until her return on July 25, 1945. Therefore in her opinion the amount due on the Dutch wealth tax assessment that was issued for 1945 should be decreased to NLG 950 (5/12 x NLG 2,280).

The taxpayer argued that from the time of her deportation until return she did not live in the Netherlands, because during that period no economic or social ties whatsoever existed between her and the Netherlands. She furthermore argues that no will to existed to return to the Netherlands during the occupation. The taxpayer also argued that she is English by birth and that she had a brother and assets in England.

The Inspector takes the position that the taxpayer continued to live in the Netherlands, since it has not become apparent that on or after her deportation she has had the will to sever her ties with the Netherlands.

The Court of Appeal agreed with the taxpayer and decreased the amount due on the assessment issued to aforementioned assessment to NLG 950.

The Secretary of State for Finances lodged an appeal in cassation against the judgment of the Court of Appeal.

The case in front of the Dutch Supreme Court

The dispute

The taxpayer and the Dutch tax authorities are disputing whether or not for Dutch wealth tax purposes the taxpayer should be considered a resident of the Netherlands for the period from January 1, 1945 until July 25, 1945.

Pleas made by the Secretary of State for Finances

In its ruling the Court of Appeal violation or misapplied Article 16 of the Law of 19 December 1914 (Official Gazette no. 564) in connection with Article 1 of the Law on Wealth Tax 1892, because the Court of Appeal established that the taxpayer has only started residing in the Netherlands on July 25, 1945 and did not reside in the Netherlands for the period from January 1, 1945 to July 25, 1945, for reasons that cannot support this decision.

In order to explain the plea the following is noted: it has been established that the taxpayer lived in the Netherlands until her deportation on December 11, 1942. She was deported against her will and therefore did not have the will to leave the Netherlands and to start residing somewhere else. The measures taken by the occupied forces were unable to bring about any change in the lasting relationship the taxpayer had with the Netherlands. In the opinion of the undersigned, it can only be deduced from these circumstances that the taxpayer has continued to live in the Netherlands. The immediate return of the taxpayer to the Netherlands after her liberation in 1945 confirms the correctness of that position.

From the considerations of the Dutch Supreme Court

That – as has been accepted as established by the Court of Appeal – on December 11, 1942 the taxpayer was deported to Germany as a Jewish resident by the occupying German forces where the taxpayer remained in concentration camps for Jews until her liberation by the Allied forces, after which she returned to the Netherlands on July 25, 1945. After her deportation the taxpayer’s entire assets, including her home and furniture, were confiscated and partially liquidated by or on behalf of the German occupying forces. The taxpayer is a single woman who left no close relatives behind when she was deported from the Netherlands.

That these facts show that after her deportation - except for an extremely small chance that the taxpayer would ever return to the Netherlands - no relationship whatsoever existed between the taxpayer and the Netherlands.

That - as the Court of Appeal correctly considered - the will of the taxpayer in the circumstances in which she found herself played no part whatsoever in determining her place of residence.

That therefore the Court of Appeal has correctly ruled that from her deportation in 1942 until her return on July 25, 1945, the taxpayer had no place of residence in the Netherlands within the meaning of Article 1 of the Wealth Tax Act 1892.

Therefor the plea is unfounded, and the Dutch Supreme Court rejects the appeal lodged by the Secretary of State for Finances.

Food for thought

The Dutch Supreme Court ruling we discussed above is obviously from a period in which AI did not yet exist. It is from a time that the legal analysis (pattern recognition as the professor called it) was still fully done by human beings. As were the subsequent decisions (pattern generation) by the tax authorities to issue a Dutch wealth tax assessment in the way they did and to reject the contest as lodged by taxpayer and by the Secretary of State to lodge an appeal in cassation with the Dutch Supreme Court.

If one looks to the case from a pure theoretical legal point of view all of the aforementioned decisions and actions made/taken by the Dutch tax authorities and the Dutch Secretary of State might be correct. Still I was flabbergasted when I read the Dutch Supreme Court judgment and that is because I missed the human dimension in all the decisions/actions made/taken by the Dutch tax authorities and the Dutch Secretary of State for Finances.

I assume that a period of at least 7 years went by between the moment that the Dutch tax authorities issued a wealth tax assessment and the Dutch Supreme Court judgment of December 22, 1954. 7 years in which nobody within these organizations stepped in and said: “Mate, legally your analysis might be perfect, but is this a case in which we should want to pursue to get the judge on our side? Should we be willing to win a case against a deported Jewish person solely on the case that this person did not explicitly express her will to sever her ties with the Netherlands at moment that the German occupied forces knocked on her door to put her on deportation to a concentration camp? Should we be willing to take this case all the way to the Dutch Supreme Court? Or didn’t the taxpayer already endure more than enough during the period of captivity in the concentration camps? So just let us respect the judgment of the Court of Appeal!”

When I heard the professor talking about the possibilities that AI offers I immediately had to think about the judgment of the Dutch Supreme Court that I had just read a few days before. The professor explained the added value to analyze legal texts and to quickly search through several Acts (pattern recognition). He also explained the added value that AI might have with the drafting of a text (eg an advice) based on the pattern it had recognized in the different legal acts (pattern generation). He also explained that in this latter area AI still makes lots of mistakes and that therefore humans are still needed to check that all referrals used to draft the texts are correct. However, what I did not hear him discuss is whether AI is able to also apply a human dimension when it drafts a text or prepares a decision.

In other words what I am afraid of, is that if nowadays AI would have to prepare/make the decisions/take the actions that the Dutch tax authorities and the Dutch Secretary of State for Finances had to make in the 1954 case, these would be exactly the same decisions and actions as those that the Dutch tax authorities and the Dutch Secretary of State for Finances made in the years 1945 through 1954. And although in a majority of cases the legal analysis will be only factor of importance and thus AI might be a very helpful tool in those cases, there are also cases in which the human dimension might be more important than the legal analysis is to come a satisfying outcome.

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