New policy for taxing wealth in box 3 still discriminating, Supreme Court rules

The Netherlands' current policy for taxing wealth in box 3 is still discriminating, the Supreme Court ruled on Thursday in lawsuits filed by real estate owners and equity investors, among others. The government must compensate savers and investors for too high taxes paid on fictitious returns. That could cost billions of euros.

Box 3 concerns taxes levied on interest on savings, price gains on shares, and income from property rental. Since 2017, the government taxed this wealth based on a fictitious return, which in many cases proved much higher than the actual return. In December 2021, the Supreme Court ruled that this way of taxing wealth violated the prohibition of discrimination and property rights and ordered the Cabinet to adjust the rules and tax savers and investors on the returns they actually received between 2017 and 2022.

The government then implemented the Box 3 Restoration Act, which aimed to retroactively align the tax levy in Box 3 with the Supreme Court’s 2021 ruling. The government determined the fictitious returns more carefully and accurately. However, the tax levied is still based on a fictitious return and not the actual return received by the investor or saver.

The government also unjustly distinguished between different groups of taxpayers, the Supreme Court ruled. The calculation of the fixed return solves the problem for taxpayers whose assets consist of bank deposits. “The fixed return for bank deposits generally approximates the actual return,” the Supreme Court said. But that is not the case for taxpayers with other assets, like shares or real estate. There, “the fixed return is calculated in the same way as the original system. This means that for all assets other than bank deposits, the problem remains.”

Therefore, the current policy still violates the prohibition of discrimination of property rights, the Supreme Court ruled. The government must compensate those affected for the years in which they paid too much tax. It must also implement a new policy in which people pay tax on the actual returns from their assets.

The Supreme Court did say that it was up to the affected taxpayers to prove that they paid too much tax. It is not yet clear how many people are involved, but outgoing State Secretary Marnix van Rij of Finance previously told parliament that the compensation bill could amount to billions of euros.