In 2021, the Dutch Supreme Court ruled that the so-called wealth tax (Box 3) is not being assessed correctly in the country. The basis was not real income, but conditional (fictitious) capital gains. The government has promised to develop and implement a new tax assessment system in Box 1 from January 2026, 3. However Secretary of State Marnix van Rij in an interview with NRC newspaper stated that it was impossible to meet the promised deadline. The introduction of the new system will have to be postponed until at least 2027.
Boxing Story 3
Box 3 is a component of income tax in the Netherlands, which includes passive income from investments and savings (deposits). The taxpayer's net assets (assets minus debt) are estimated as of January 1. Initially, in 2001, when the Income Tax Law (Wet Inkomstenbelasting) was passed, there were no issues with Box 3. The withholding tax rate in Box 3 was 30% and was charged on a fixed (“fictitious”) income of 4% of capital or property value, i.e. 1,2% of total assets. Real capital gains or losses did not affect taxable income.
Thus, in addition to a small exemption, an income tax of €1200 (1,2%) had to be paid on every €100 of assets. Initially, most taxpayers could live with it. However, the situation changed when interest rates on savings began to fall. In particular, taxpayers who had savings and did not invest (in real estate, securities, and so on) were at a disadvantage. After all, the 4 percent yield that the legislator laid down did not exist for them.
"Christmas Judgment"
In 2017, changes were made to the legislation, which, unfortunately, did not solve the problem. Although the tax rate became floating, the tax assessment system in Box 3 was still not based on actual profits. The actual income of an individual taxpayer in a tax year could be higher or lower than fictitious capital gains. In particular, many depositors had to pay exorbitant amounts of taxes.
In August 2021, massive objections were received from taxpayers to the tax service in connection with the incorrect calculation of tax in Box 3 for 2017-2020. Litigation was initiated. The Supreme Court (Hoge Raad) considered the objections of the taxpayers reasonable and on December 24, 2021 issued its high-profile decision, which became known as the "Christmas verdict".
The court stated that the current method of taxation does not take into account the actual return on savings and investments and therefore violates the European Convention on Human Rights. The government was tasked with developing a new tax assessment system in Box 3. In addition, the government agreed to compensate those 60 people who filed formal objections. About all the "chapters" of the epic with compensation for Boxing 000 - in our articles.
Transitional period
For the period from 2017 to 2025 inclusive, a temporary solution was developed to calculate the tax in Box 3. Although the calculations are still based on fictitious returns, in order to get closer to real returns, assets are categorized, each of which has its own fixed income. Now the tax rate in Box 3 is determined not for all assets taken together, but for different categories separately. If savings do not generate income, then they are not taxed.
For example, the in 2022, income from savings (bank balances and cash) is taxed at a rate of 0,00%, from investments and other assets - 5,53% (more on this - https://www.izakayasushilounge.com tax office). The fixed percentage of profitability on bank balances is finally determined only after the end of the calendar year. It is based on the average monthly interest rate on deposits maturing no later than three months of the current calendar year.
The tax rate in Box 3 is 31% in 2022 and 32% in 2023. This rate increases annually by 1% (up to 34%) in 2025. Box 3 exempts savings of €50 per person in 650 and €2022 in 57. With a fiscal partner, the total tax-free amount is 000 euros. Bitcoins or other cryptocurrencies are not considered as savings and are taxed like other assets.
At the same time, until 2022 inclusive, the taxpayer can choose the tax calculation method in Box 3:
- the first (old) is based on a fictitious asset allocation - more on that here;
- the second (temporary solution) is on the actual distribution of assets, which we described above.
The future of the "wealth tax"
According to Secretary of State van Ruy, Parliament will be discussing changes to the Box 3 tax system in early May: “Even if the bill is ready by the summer, online consultations will have to be held, then a year and a half will be spent on the legislative process and another year and a half on implementation. That is, meeting before January 1, 2026 will be almost impossible..
Part of the reason for the delay lies in the unpreparedness of the IT system of the tax service to calculate the tax in Box 3 in a new way, taking into account real income instead of fixed profitability indicators. So, the declared time for the introduction of a new tax system in Box 3 is 2027.
Publication Date: 27.03.2023
