February 22nd, 2022
On December 24th, 2021, the Dutch Supreme Court decided on a massive objection procedure against the current tax regime in respect to personal savings and investments. This regards the box 3-regime under the Dutch income tax law. The court ruled that the box 3-regime is considered to be a violation of the European Convention on Human Rights for the years 2017 and 2018. This ruling will have a significant impact on many taxpayers that have savings and investments.
What is the box 3-regime?
As of 2001, the box 3-regime is designed to levy tax based on a deemed return on personal savings and investments instead of basing the taxation on an actual yield. As of 2017, instead of one rate for all assets, different brackets with different assumed yields were introduced.
The Tax Authorities assume that the box 3 assets of taxpayers consist of an ‘asset-mix’ between savings and (more risk bearing) investments.
It is clear that this asset-mix can never fully be in line with the actual situation of all taxpayers. This could result in the disproportionate levying wherein taxpayers with only saving or more savings than assumed in the asset mix are deemed to have a (much) higher return than the actual return they had or can have.
Ruling on box 3
The Dutch Supreme Court ruled that the box 3-regime is considered to be in violation with European fundamental rights; specifically the right to peaceful enjoyment of possessions and the prohibition of discrimination. The court stated that there is a heavy financial burden on the taxpayer’s decision to invest in risk-bearing assets, instead of keeping savings, in order to generate the deemed return. It is concluded that the taxpayers – who are part of the massive objection procedure – need to be granted a restoration of their rights for the years 2017 and 2018. The court structured this in the way that they will only be taxed on their actual returns, not on their deemed returns. Please note that it is very remarkable that the court offers a specific restoration of rights, instead of leaving it to the legislator.
What to expect?
This ruling will have extensive consequences for the taxpayers of box 3 and the final word has not been said yet. There are still many questions left unanswered. Will this ruling have effect on all taxpayers or only the taxpayers who joined the objection? How are the actual returns determined? Will it also affect years prior and after 2017-2018? We hope to receive more clarity from the Dutch government soon. Initially the government intended to change the box 3-regime as of 2025. However, it is expected that given this ruling the government will take quicker action to adjust the current regime to a box 3-regime with a tax based on actual returns.
What we do know is that the Dutch State Secretary has stated that the Tax Authorities won’t impose any assessments or decisions on non-final income tax returns which involves box 3-taxation. This also includes the concerning income tax returns for 2021, which can be filed as of March 1st, 2022. For the taxpayers who would like to have an assessment imposed – for example in the case of a rebate – this could be an undesirable situation. Please do not hesitate to contact Broadstreet if any advice or guidance is desired during these remarkable developments concerning box 3-taxation.