In recent weeks, considerable unrest has arisen in the financial press and Dutch politics about the Dutch wealth tax. Taxpayers with mainly savings have been hoping for years against paying taxes on a theoretically determined, and in recent years way, far too high, return on that conservatively invested capital. Of a slightly more recent date is that the return already became negative due to having to pay interest on held bank balances. The outlook for 2021 was a “triple whammy”; this “unfair” tax, negative interest rates and on top of that also a considerably high inflation.
60,000 objections were enough for an avalanche
A few years ago, a lawsuit was filed on behalf of initially 60,000 private taxpayers from 2017 and 2018 with a lot of low-yielding Box 3 assets. In the end, the Supreme Court ruled; (i) the Box 3 taxation is unlawful and (ii) taxpayers must be offered legal redress. Because it is the Supreme Court that made the ruling, no appeal is possible against the ruling and because of the words “unlawful” and “restoration of rights”, politicians feel that the consequences of the ruling are much greater than just this group that started the lawsuit. Has this method of taxation died? Politicians already know: absolutely!
Taxing actual returns is practically not easy
The way to tax a flat-rate return, adjusted in 2017, is intended as an intermediate step towards taxing actual returns. Several cabinets were unable to take that last step. Not only due to political priorities that changed every 4 years, but also the practical feasibility is hindered by heavy backlogs in modernization of systems and radical urgent projects that erode the staffing of the executive forces of the Tax And Customs Administration (such as the Allowances Affair).
The reliable obtaining of data to be able to tax actual returns is if those assets are held with banks, insurers and asset managers under Dutch supervision is in principle feasible to a very large extent. But with investments outside that environment (domestic and foreign parties outside Dutch supervision, directly held real estate, art, etc.) it is of course different. The new cabinet had already indicated that due to necessary changes in automated support, they do not expect that actual returns can be taxed until 2025. Because new elections are taking place in that year, that promise was, in our opinion, little more than a postponement while preparations are being made.
What’s going to happen next?
It was no longer possible to adjust the levy process for 2021 and withholding taxes for 2022. So declarations must be made in the old way, although no final assessment is imposed for those with Box 3 assets and the assessment will be postponed. (link in Dutch)
Legislation is still needed in 2022 to ensure implementation in 2023 for:
- Catching up 2017-2021
- Temporary way 2022-2025
As far as we are concerned, in addition to the “new mechanism”, it is also interesting how expectations about retroactive and respectful effect will be dealt with.
In recent years, many investors with an average low return have switched from Box 3 to Box 2 due to a lot of savings in their assets. We have also advised several clients to do so. For the time being, there is no reason to change this. The tax burden on capital invested in a Dutch corporation (BV) for the vast majority is now less than 40% (if the profit is distributed immediately). The new Box 3 levy mentioned in the previous paragraph will become clear in the coming months. This makes it possible to advise whether to maintain the investment/savings BV.
What can you do?
Check whether your tax advisor has objected to (link in Dutch) Box 3 taxation for the years 2017-2020. If not, file the objection if your tax advisor still sees it as possible and useful.
We advise our clients who were eligible for an investment/savings BV not to set it up for a while; in the third quarter of 2022 we will come back to them with advice based on the situation and expectations at that time.