At the end of December, the Supreme Court ruled that the way in which the Dutch government levies tax on savings and investments is unacceptable. The Box 3 tax (also called ‘savings tax’) is in violation of the European human rights treaty and therefore illegal, according to the highest court.
The decision of the Supreme Court has hit the Ministry of Finance like a bomb. There is now a kind of emergency operation going on to map out and absorb the consequences of the judgment. State Secretary Marnix van Rij (Fiscality) wrote in a letter to parliament on Monday that the ministry is working ‘with man and power’ on a solution that is feasible for the tax authorities. After all, from 1 March, the Dutch will have to file a tax return for 2021 again.
Van Rij reports to the House of Representatives that the imposition of assessments and decisions for Box 3 has been suspended ‘until further notice’. First, the tax on income from capital (capital yield tax) must be brought into line with the judgment of the Supreme Court. This means that the government must lower the tax rate (perhaps significantly).
No amounts
This could cost the government billions of euros. Van Rij speaks of ‘major budgetary consequences’, but does not mention any amounts. The annual yield of the capital gains tax is between 4 and 5 billion euros. Last year it was 4.8 billion euros.
The judgment of the Supreme Court applies from tax year 2017. The Ministry of Finance must therefore also review and partially repay the Box 3 tax already collected for the completed tax years 2017, 2018, 2019 and 2020. The Tax and Customs Administration is now investigating how this ‘recovery operation’ can be carried out.
It is unclear whether the ministry will correct all Box 3 decisions for these years, or whether only citizens who objected to their assessment in good time can count on compensation. The Bond voor Belastingbeers has initiated so-called ‘mass appeal proceedings’ against the savings tax over the aforementioned four tax years. The total number of participants in these objection procedures is probably more than one hundred thousand. They will almost certainly get money back.
It is uncertain whether the government will also refund Box 3 taxpayers who have not lodged an objection with retroactive effect. That’s over a million. Such a decision would cost the Treasury a great deal of money. The cabinet hopes to provide a definitive answer on this in early February. The judgment ‘has a major impact and the consequences of this are of the highest priority for me’, Van Rij writes to the House of Representatives.
Provisional attacks 2022
The tax authorities have already sent provisional assessments for 2022. These are still based on the Box 3 system that the Supreme Court has declared illegal. These assessments will be corrected afterwards (i.e. adjusted downwards) when the Tax and Customs Administration adopts the final assessment. Taxpayers who have already paid the provisional assessment will probably get a refund.
In the coalition agreement, the new coalition has set itself the goal of adjusting the much criticized savings tax by 2025. At the moment everyone pays the same fixed rate, even if that return is zero because the saver has all his money in an interest-free savings account. As a result, the Box 3 tax is actually higher for many than the return achieved. According to the Bond voor Belastingbeers, this amounts to expropriation.
The Supreme Court more or less agrees with the Bond in its judgment. The Council believes that by making investors and savers pay the same tax rate, the government places savers at a disadvantage. Every citizen should be free in the way he or she wants to manage his or her wealth. The current Box 3 tax imposes a sanction on savings, forcing citizens to take more risks with their assets than they actually want.
Bad luck or luck on the stock market
Moreover, the tax burden should not depend on bad luck or luck on the stock market. An investor who makes a loss on his investments now pays relatively much more tax than someone who makes a 10 percent return on his securities portfolio.
The Supreme Court therefore in fact orders the government to reduce the Box 3 tax to virtually zero percent (in accordance with the current savings interest rate) or to differentiate and tax the actual savings and investment return. However, the latter encounters major implementation problems at the tax authorities. That is why the cabinet did not want to adjust the Box 3 tax until 2025.
Due to the judgment of the Supreme Court, this must now be done much earlier, writes Van Rij. Otherwise, taxpayers can successfully challenge all Box 3 assessments from now on.