Box 3 Legal Restoration Act

Recently, there have been many developments regarding the taxation of assets (box 3). We hereby inform you of the current state of affairs.

If you did not have Dutch taxable income on savings and investments (box 3) in the years 2017 until 2022, this information is not applicable to you. Did your assets increase or did you have the 30% ruling and will it end in 2023 (or soon)? Then the following might be relevant.

We would like to inform you about the following topics:

Christmas Judgement and consequences assessments 2017-2020
Income tax Assessments 2021 and 2022
Bridging tax law 2023-2026
Actual return on investment
What to do?

Christmas Judgement and consequences assessments 2017-2020

In the so called “Christmas Judgement” of 24th December 2021 the Dutch Supreme Court ruled that Dutch taxation of wealth based on notional return (box 3) for the years 2017 and 2018 violated property rights and the principle of equality.

Box 3 Legal Restoration Act

Following this, legal restoration was offered, laid down in the Box 3 Legal Redress Act. This introduced a temporary calculation method applicable for the years 2017 up to and including 2022.
This calculation method, the so-called “savings variant”, is based on the actual composition of assets on 1 January and distinguishes between savings (category 1), other assets including investments (category 2) and debts (category 3). Each category has its own notional return determined which (according to the Ministry of Finance) better reflects actual returns. Savings are then taxed differently from investments and debt, for example. The percentages for this year (2023) will not be determined until after the end of the calendar year. For comparison, the rates for 2022 were 0.00%, 5.53% and 2.28% respectively for the categories mentioned.
For these years, the most favourable calculation was automatically applied for assessments that were not yet irrevocably fixed on 24 December 2021. For other assessments, objections can (still) be made within six weeks of the date of the assessment.

Objectors 2017-2020

Objections to the box 3 levy for the years 2017-2020 have been classified as a “mass objection”. These were upheld in a collective ruling on 4 February 2022.

From September 2022, the tax authorities automatically applied the most advantageous method to assessments up to and including the year 2020, if it resulted in a lower amount.

Those who do not agree with the legal restoration offered can submit a request for a deduction, so-called ‘ex officio reduction’. For the year 2017, this is no longer possible due to the five-year deadline.

A request can still be filed for the year 2018. This must be received by the tax authorities by 31 December 2023 at the latest.

Non-objectors 2017-2020

Initially, taxpayers who had not objected had no right or prospect of legal restoration. After consultation with interest groups, the state secretary decided to adjust his policy and launched a so-called “Mass Objection Plus Procedure”. This will see whether four groups are still eligible for restoration of rights (the calculation method as explained above). Incidentally, the current government does not expect non-objectors to be entitled to restoration of rights.

If the Supreme Court rules that this group is nevertheless eligible for restoration of rights, the Tax Administration will apply this automatically. The Ministry of Finance has indicated that people who did not file an objection and did not submit a request for submit a request for a deduction, so-called ‘ex officio reduction’ have the same rights as non-objectors who did submit a request for ex officio reduction. Moreover, for this group, there is still the possibility to file an ex officio reduction request if the actual return (box 3) was lower.

Income tax Assessments 2021 and 2022

For the time being, the tax authorities will not impose final assessments 2021 and 2022 if there are box 3 assets (and these do not exclusively consist of bank balances). Provisional assessments will, however, be imposed.

Bridging Tax law from 2023 – 2026

From 2023, the method largely similar to the Box 3 Legal Restoration Act will apply. In short, from 1 January 2023, assets will be calculated using the new calculation method (the three categories). And although the tax-free capital per taxpayer has been increased from €50,650 (2022) to €57,000 (2023), the rate has gone up from 31% (2022) to 32% (2023). This will become as high as 36% in 2024. This may mean that the tax payable in Box 3 increases if your assets consist mainly of other assets and any debts and you have relatively few bank deposits.

If your assets consist mainly of bank deposits, then the new rule is likely to be more favourable to you. For completeness, starting from the year 2023, you no longer have a choice and the most advantageous calculation method (as for 2020 and 2021) will not be applied! It is therefore important that you look carefully at the composition of your assets. In common situations, it is wise to apply for a provisional assessment 2023 or 2024: you can then pay the tax due in instalments, instead of in a lump sum. This will also allow you to save tax interest, as this has also risen in the meantime.
Incidentally, it is quite possible that this Bridging Act will also be subject to litigation.

New system: from 1 January 2027

A new system of levying Box 3 is expected to be introduced from 1 January 2027 whereby it has been proposed to tax the total actual return in Box 3.

Actual return on investment

Actual return includes directly received income such as interest, dividends and rental income. It also includes realised changes in equity, such as sales results and capital gain on shares and real estate. It is not yet clear whether unrealised changes in equity, such as changes in the value of shares and real estate, are also included. Proceedings on this issue have led to different outcomes from the courts and tribunals. In some proceedings, decreases and increases in value were taken into account and in others, unrealised changes in equity were not. The Supreme Court has yet to give a final opinion on this.

What to do ?

Have you recently received a (final) assessment with box 3 tax or will you receive one soon? And are you of the opinion that the application of the lump sum still leads to an unfavourable outcome and/or the actual return is lower? Then submit an objection to the assessment within 6 weeks of the date. Of course, we can assist you with this.

If you have already received an assessment and have not filed an objection within these six weeks, and you believe that the actual return was lower, a request for a deduction, so-called ‘ex officio reduction’ can be submitted within five years after the end of the calendar year.
Note: for the year 2018, the tax authorities must receive such a request before 31 December 2023. A side note here:

If the assets for the years 2017 to 2021 in particular consisted of other assets and/or debts, then usually the old calculation method is more favourable than the legal adjustment (‘savings variant’).
If the actual return was lower, you can file an objection or request for a deduction, so-called ‘ex officio reduction’. Note that a request for ex officio reduction must be justified. This means that you must prove that the actual return was lower than the so-called “benefit from savings and investments” as stated on the assessment.

Actions?

Do you want to object or submit a request for a deduction, so-called ‘ex officio reduction’? If so, please let us know before 1 December 2023 at tax@aame.nl. In that case, we kindly ask you to provide the necessary information, such as interest actually received, dividends, rental income, sales proceeds and a statement of changes in assets. Given the ongoing proceedings and the fact that there are multiple interpretations on what constitutes “actual return”, this can be a time-consuming process. Thereby, the question is whether the outcome outweighs the costs of any proceedings.

There are costs associated with our work. These costs depend on the information we already have from you and you (additionally) provide us with. We will ultimately charge the actual time at our hourly rate. Please note, it is then a question of whether the costs outweigh any refund to be received.