Gov't plan for new capital gains tax much too complex: Council of State

The government’s plans to modify how it taxes earnings from savings and investments is too complicated and will make everything more difficult for citizens and the Belastingdenst, the Dutch tax office, said the Council of State in a critical piece of advice to the government. The advisory statement from the country's highest administrative court was published on Monday.

In June, the Supreme Court ruled that the manner in which the Netherlands levied tax on savings and investment listed in Box 3 on annual tax filings conflicted with the European Convention of Human Rights. The Box 3 tax was levied based on a fixed, assumed return on savings, shares, and additional real estate, but this did not take into account that savings account interest rates were very low for a long time.

Thus many people in the Netherlands who kept liquid assets in savings accounts ended up paying tax that even exceeded the actual returns on these assets. The Supreme Court ordered the government to come up with a new tax plan in which people pay tax based on what they actually get.

The government came up with a proposal to levy tax based on actual returns, using a mix of capital growth- and capital gains tax. In general, assets in Box 3 will be subject to capital growth tax, except for real estate and shares in start-up companies, which will face a capital gains tax. The proposal also includes a flat-rate approach for regular returns from real estate not rented out all year round.

This will make the Box 3 tax system much more complex, the Council of State concluded. “It will lead to poorer service provision, limited opportunities for preliminary consultation with a tax inspector, and insufficient supervision,” the Council said.

The government is also counting too much on citizens’ “ability to act,” the Council added. The proposed system will require 1.6 million taxpayers to file a complicated asset comparison every year.

The Council of State is also critical of the government’s assumption that the tax revenue in the new Box 3 system will be as much as before. “Strict adherence to this principle hinders the careful and integral assessment of the various interests,” the Council said.

Legality must be paramount in the tax assessment, not a target tax amount collected. “The government is advised not to submit the bill in this form and to reconsider the design of the box 3 system,” the Council of State said.