Netherlands will repay up to €11.7 billion for unlawful taxes on savings and assets

It will take billions of euros to reimburse people who paid a tax on their savings and assets declared in the Box 3 section of their income tax returns between the years 2017 and 2022. The tax was declared unlawful last December. In the lowest-cost scenario for the treasury, the Cabinet will allocate 2.4 billion euros, but if a larger group of people receives compensation the bill will rise to 11.7 billion euros, State Secretary Marnix van Rij told the Tweede Kamer.

At the end of last year, the Supreme Court ruled that the Dutch method for levying taxes on what people earn from their assets is in violation of the European Convention on Human Rights. Many of those affected have objected to the asset tax for years, and this time the Court ruled that they should have the right to reparations, which would entitle them to compensation and force the Cabinet to make budget cuts.

The asset tax was considered unfair because tax was levied on a fictitious fixed return of 4 percent for all assets once the combined value is above 50,000 euros, or 100,000 euros for those with tax partners. At the same time, those who kept their cash as liquid assets likely earned very little from their savings because of low interest rates, while investments often have a higher yield. People with savings thus paid a disproportionate tax which applied to yields that they never actually achieved.

Van Rij presented two options on Friday for compensating the victims. The options that have been worked out are both "technically manageable." The intention is that the tax office begins giving compensation from around July 1.

The first version focuses only on those with savings accounts. In that scenario, the interest on savings is taxed at the current interest rate, currently around 0 percent, while earnings from investments are taxed based on the multi-year average return. This is an average yield of investments over 15 years. In the second option, more forms of wealth are broken down and analyzed. Tax is then calculated separately on the average returns for savings, buildings and other forms of real estate, stocks, and bonds.

The amount needed for compensation also depends on which groups will be compensated: Only those who objected, Only those with savings, or even people who have lawfully made more investments. In the 2019 fiscal year, about 2.7 million taxpayers made declarations in Box 3.

The state secretary has yet to say which option he prefers. He did emphasize that the Supreme Court had no problem with the system of a fictitious return, but that it ruled that the percentage in some circumstances was far too high, largely affecting those with savings accounts. Van Rij also acknowledged a motion from political party Ja21, which was adopted by Parliament, to first give compensation to those with the most modest level of savings.