Supreme Court calls legislator to order in the area of box 3 tax
By means of: mr. Daisy Mandema
In this blog I will discuss the important arrest of the Supreme Court on the flat-rate wealth tax or the box 3 system. This ruling has far-reaching consequences for taxpayers and also affects family law practice, where financial aspects come into play in the event of a divorce or the termination of a cohabitation.
The current box 3 system
Since 2017, the box 3 system assumes a fixed distribution of assets between savings and investments: the asset mix. As assets increase, the system assumes that taxpayers invest a larger portion of their assets. In addition, the law contains a fixed fictitious return for both asset elements ('the lump sum'), which the legislator has based on average returns from previous years. As a result, with the current box 3 system, the legislator ignores both the actual asset mix of taxpayers and the actual return achieved.
The Supreme Court's ruling
According to the Supreme Court, the current box 3 system is unacceptable. After all, the system assumes that people invest part of their assets, while they also have the freedom to save. As a result, savers in particular have been overtaxed, because they received little to no interest on their savings and still had to pay tax as if their assets did yield a return. The Supreme Court therefore ruled on 24 December 2021 that the current box 3 system is in conflict with the undisturbed right to property and the prohibition of discrimination. Unlike before, it now does offer legal redress for this violation of fundamental rights: instead of a fictitious return, the levy must be based on the actual return. The Supreme Court did not rule on the manner in which the actual return achieved should be determined.
The Supreme Court's ruling is a huge relief for many taxpayers who pay box 3 tax. After all, they can expect a solution that should ensure that the taxable box 3 benefit will not be higher than the actual return in the future. In addition, these taxpayers can enforce that they are taxed on the actual return for 2021 if the actual return is lower than the fictitious return. The Tax Authorities will take the ruling into account when determining the final assessments for 2021.
For the past, the ruling has a (political) aftermath. For the tax years 2017-2020, only individual 'mass objectors' benefit from the ruling. In other words, if taxpayers have filed an objection for the years 2017-2020, they are eligible for the legal redress that the Supreme Court offers in this procedure. This means that they have the right to pay box 3 tax in line with the actual return enjoyed in these years. Several members of parliament have also requested that the ruling and the associated legal redress be declared applicable to all taxpayers who pay box 3 tax in the period 2017-2020.
In addition to the above dilemma, the Supreme Court's ruling leaves many questions open that the legislator must answer. How should the actual return actually be determined? Should costs, in addition to income from assets, such as dividends and rent, also be included in determining the actual return, and if so, which ones? The Supreme Court has presented the legislator and politicians with a difficult issue. Perhaps inspiration can be drawn from the tax systems of many other EU and OECD countries in this context.
Reform of the Box 3 system
One thing is crystal clear: the legislator must reform the current box 3 system in such a way that a balanced tax on the actual return takes place. That will prove to be quite a task in a period in which the Tax and Customs Administration is already facing more hot fires.
In short, savers who pay tax in box 3 will have to be patient for a while before they know where they stand.
