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Current box 3 issue – update

Current box 3 issue. A first in Dutch tax history. Tax rules are adjusted retroactively as box 3 tax has been deemed illegal by the court.

The reason for this is because the Dutch box 3 taxation is meant to tax the fictitious capital proceeds. Due to the manner the fictitious capital proceeds were calculated, in many cases savings were taxed. Taxed at a much higher rate than the actual interest received and this has been deemed unfair. Do you have relatively high bank accounts and relatively low stocks, then this is good news for you!

The “old” system

In order to further understand the issue, it is first important to note the current way of taxing assets in the Netherlands.

Currently, this is done over the value per 01-01-of the relating year, so for 2020, per 01-01-2020. Over the value per 01-01-relating year, the notional income has to be calculated. This is done via the following brackets (2020 rates):

The result of this bracket is called the notional box 3 income. This income is taxed for 30% (2020 rate).

2017 introduction of asset split

In 2017 the Dutch tax office introduced an asset split. The assets were split in savings and investments. This self-assumed by the Dutch tax office sophisticated setup, now bites back.

The court ruled that the increase in value of an asset can be taxed. For share portfolio and property investments the increase since 2017 was obvious. For cash in the bank there was no increase. The interest was zero or negative.

The Box 3 system before 2017 did not make a distinction between cash and investments. Hence the court ruling does not affect the system before 2017. Since 2017 the cash part is specifically addressed. At a random generic calculation. This has been ruled as illegal.

Continuing the example above

As you can see, there are 2 percentages in box 3, the lower savings percentage and the higher investors percentage. However, you cannot state how much you save and how much you invest. This is randomly decided by the Tax authority.

That implies, if you have only for instance EUR 2.000.000 in savings. Investments are assumed, while you have none. You will be taxed over 33% of EUR 72.798, 79% over EUR 932.775 and over 100% of  EUR 994.427 as an investor. However on savings, you have no proceeds with negative interest rates. Hence it would not be fair if you are taxed as an investor, without the related gains.

Notional income in this case would be:

A EUR 72.798 * 0.07% * 67% = EUR 34,14
EUR 72.798 * 5.28% * 33% = EUR 1.268,43

Then EUR 2.000.000 – EUR 72.798 = EUR 1.927.202 remaining
2nd bracket is EUR 1.005.573 – EUR 72.798 = EUR 932.775

EUR 932.775 * 0.07% * 21% = EUR 137,11
a EUR 932.775 * 5.28% * 79% = EUR 38.907,91

EUR 2.000.000 – EUR 72.798 – EUR 932.775 = EUR 994.427 remaining

EUR 994.427 * 5.28% * 100% = EUR 52.505,75

Total notional box 3 income is therefore EUR 34,14 + EUR 1.268,43 + EUR 137,11 + EUR 38.907,91 + EUR 52.505,75 = EUR 92.853,34 notional box 3 income.

In 2020, this amount is taxed for 30%, so EUR 27.856 tax is due.

This has been deemed illegal by high court on 24-12-2021.

What will happen now?

The Taxauthority and Dutch government have changed the way box 3 taxation is calculated. Savings will be taxed as savings, stocks will be taxed as stocks and other assets will be taxed as other assets. Property abroad will still fall under double tax relief is stated in the Tax treaty.

The new rates are expected to be as following:
In this case for 2020, if you have EUR 2.000.000 in savings after tax free threshold, but EUR 0 in stocks, your notional income from box 3 is expected to be EUR 800. 30% (2020 rate) of tax over this income would be EUR 240.

If you compare EUR 27.856 with EUR 240, you would be charged EUR 27.616 less, due to the new box 3 calculations.

I already objected, what will happen now?

If you joined the class action, then you can expect a reply in regard to the change before August, 4th.

I did not object, do I need to do something?

This will most likely become known in September (prinsjesdag). You might wonder why you were not trickered to join the class action in the first place. The reason for that is simple. Since the introduction of the Dutch tax system by Mr Alva (Spanish invader), the high court has never ever ruled against the laws put in place by the Government. That is based on the Montesquieu principle of dividing the power of law creating, law enforcement and judging the law. Nobody saw this coming.

Is the Box 3 adjustment always beneficial?

No. The adjustment is beneficial for people who have relatively high savings and relatively low stocks.

How do I refile my taxes, as the current software does not have any option to change box 3 tax calculation?

You are not the only one wondering. The tax office itself is also wondering how to do this. Hence to buy time, you have received a letter from the Dutch tax office. A so called bladibla letter. A lot of text, but nothing stated.

Have patience and your 2021 Box 3 return in case you had bank balances in the return, will be updated automatically.

2022 preliminary assessments based on box 3 tax have been provided with delay in payment. Any amount already paid cannot be requested back.

Have you already filed the 2021 tax return based on the outdated system, then the following will happen to you:

The Tax authority will adjust your 2021 tax return to the new system. There is no further action required to have this adjusted.

You will receive a similar letter as below, the so called bladibla letter, stating that your tax return will be imposed in 2 assessments due to the correction that needs to take place.

Please note, this letter is for a person with more bank accounts then stocks, hence in these cases there is also stated that you can expect not having to pay additional tax, but you might be entitled to a refund.

Tax is exciting

My name is Kelly. We think tax is exciting. Exciting times for those who have much savings, but little stocks. Please feel free to reach out to us in September in regard to recalculating your tax returns.

Does this post make you want to get in touch? Go for it!

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