New Box 3 tax system too complicated; Tax office needs more time, people to implement it

The reform of the box 3 tax on income from savings and capital is proving even more complicated than expected, State Secretary Marnix van Rij wrote in a letter to parliament. The Tax Authority will need more people and more time to implement the changes, and the new system may be too complicated for citizens to understand, the State Secretary wrote, Financieele Dagblad reports.

Van Rij asked the Tax Authority to do an implementation test of the draft bill submitted to parliament early this year. The tax office expects the new system to cause an increased risk of fraud and more questions from taxpayers. The Tax Authority said it would need 650 to 800 additional full-time employees to accommodate this.

The Tax Authority is also doubtful about the intended implementation date of 2027. The draft bill’s combination of capital growth and capital gains tax creates “increased complexity,” which requires more adjustments than expected. “As a result, it is expected that the bill in its current form cannot be fully implemented in 2027,” Van Rij said. He is investigating whether a “phased entry” is an option.

Last year, Van Rij seemed to make a breakthrough in the Box 3 reform when he proposed a combination of capital growth and - gains tax. People would pay a capital gains tax on illiquid invesmtnets, like real estate and interests in startups and family businesses, only paying tax when those assets are sold. And a capital growth tax would apply to liquid investments, like listed shares and bonds. Investors pay an annual tax on the increase of their interests’ value, which they can offset against losses.

But it is that combination that is making the implementation extra challenging for the Tax Authority. It may also prove too complicated for taxpayers, increasing the risk of accidental fraud and the number of questions posed to the Tax Authority.

Van Rij also reported a setback for family businesses. At the VVD's insistence, he made an exception for small family businesses—their shareholders would pay capital gains tax instead of capital growth tax. The VVD feared that investors in unlisted companies could get into trouble if they had to pay tax year after year on the increase in the value of their interests. People might be forced to sell shares to pay their tax bills.

But the exception for family businesses is contrary to European Union state rules, Van Rij informed parliament. According to Van Rij, there is not a clear enough distinction between small family businesses and other companies to allow for the exception. He will, therefore, amend the bill so that small shareholders of family businesses will have to pay capital growth tax every year in box 3. The exception for real estate and start-ups does pass muster and can remain in place.