Burden of proof

What it means

The burden of proof is a party's duty to prove its assertions. If it fails to do so, the court or authority decides against it, even if it is actually right. Closely linked is the burden of allegation, the duty first to set out the facts the party wants to prove.

In a civil dispute, the burden usually lies with the party that draws favourable consequences from a given fact. The claimant must prove that the claim arose and is due, while the defendant must prove that it paid or that limitation has expired.

In tax proceedings the taxpayer carries the burden. It must prove with documents that a transaction really took place, that an expense relates to the business and that it is entitled to deduct VAT. The tax authority, for its part, proves facts that undermine the credibility of the taxpayer's documents.

How it works in practice

In a tax audit, an invoice alone is not enough. The tax authority may ask for contracts, orders, correspondence, delivery notes, photos, service outputs or witnesses. For services such as consulting or marketing, there must be evidence of exactly what was delivered.

Document retention for the entire period during which tax can be assessed is essential. E-mail correspondence, access logs and supplier reports are worth keeping with the invoices, because years later they are hard to track down.

The tax authority assesses evidence by its substance, not just its form, in line with the substance over form principle. Its findings and assessment of the evidence are set out in the tax audit report, on which the taxpayer can comment.

What to watch out for

In chain transactions and VAT fraud cases, tax authorities also examine whether the taxpayer knew or should have known it was taking part in fraud. Vetting business partners and documenting those checks are therefore an important part of the evidence.

In court, an expert opinion may be decisive on technical questions. The party bearing the burden of proof often has to propose and pay for it, so it is wise to gather the material an expert will need as soon as a dispute arises.