Double taxation relief finally 100%. You would assume that was already the case, but some of you are very much aware it was not.
Double taxation relief finally 100%
We understand that this is a mathematical topic. Tax and mathematics could be too much for a bright sunny day. The numbers can make you more confused.
Accept the bottom line, the double taxation relief is finally properly calculated. Has literally taken ages to get to this moment. A celebration should be in place.
When does the double taxation relief apply?
If you are a Dutch tax resident and you have global investments, the tax treaties determine in which country is taxed what.
That implies that financial investments like bank balances, shares, stocks and options are taxed in the Netherlands. Property is taxed in the country where the property is actually located.
The double taxation relief applies to property abroad.
What was done incorrectly?
If you have EUR 750.000 in world wide assets, you are a couple, own EUR 250.000 property abroad. For easy of calculation we use the old rate of 1.2%. The taxation is as follows.
The base is EUR 750.000, a couple has a EUR 100.000 (2021) tax free amount, hence EUR 650.000 is taxed at 1.2% for EUR 7.800. The double taxation relief is EUR 250.000/EUR 750.000 (taxation base) times EUR 7.800 is EUR 2.600. The Box 3 wealth tax is then EUR 7.800 minus EUR 2.600 is EUR 5.200.
We have nearly only clever clients in our client base and they disagreed with the calculation. If the property cannot be taxed in the Netherlands, the EUR 250.000 value should not be in the EUR 750.000 total. That implies the base is EUR 500.000 minus EUR 100.000 tax free amount. Then the taxation is EUR 400.000 times 1.2% is EUR 4.800.
The Box 3 tax credit made the double taxation relief not be 100%.
Dutch tax office acknowledged incorrect calculation
The Dutch High court ruled on December 24, 2021 that the Dutch tax office uses incorrect formulas for double taxation relief. The Dutch tax office confirmed this and now changed their system.
All tax returns that are still to become final who contain a double taxation relief as mentioned above, will be adjusted.
Tax is exciting
We think tax is exciting. Explaining that certain aspects of the tax return is exciting. Then not being able to explain why it is not 100% tax free is not very exciting.
Some might think that if you own property abroad, you can pay for the tax. That is actually not correct. The property is already properly taxed in that other country. Hence this should not be taxed again in the Netherlands. Nobody likes to pay twice for the same.