Global Daily Tax News, Netherlands To Honor All Valid Box 3 Tax Refund Claims, (Sep 19, 2024)

In its newly released 2025 Tax Plan, the Dutch Government has confirmed how it will deal with Box 3 income tax refunds.

Specifically, it has decided who will eligible for additional compensation in relation to the Supreme Court's judgments regarding the legality of the Box 3 income tax rules.

On December 24, 2021, in its first ruling, the Supreme Court ruled that the way in which capital is taxed in box 3 is in violation of the European Convention on Human Rights (ECHR).

Under the disputed rules, tax is applied based on a deemed return from savings and investments. Controversially, the rules provide that as a taxpayer's savings and investments increase, more should be attributed to investment activity, which is deemed to generate a greater return for the taxpayer. This is regardless of whether the taxpayer in fact has only savings. Consequently, a higher rate of return is assigned to those with more assets and more tax applies.

A second ruling was released by the Supreme Court in June 2024 that provided that, despite the rules being modified, the Box 3 income tax provisions remain unlawful. It ruled that only the actual return on capital may be taxed.

Alongside the 2025 Tax Plan, the Dutch Government announced: "It has been decided that the target group for compensation will be broad. All taxpayers who have (or have had) an assessment imposed subsequent to what has become known as the Supreme Court's 'Christmas judgment' on December 24, 2021, can file the 'actual return' form if their actual return was lower than the assumed flat-rate return."

"Taxpayers who received assessments in the years 2019 and 2020 are required to submit a request for automatic reduction before the five-year time limit expires. Taxpayers with a 2019 assessment must submit their request by the end of this year, while those with a 2020 assessment have until the end of 2025 to do so. Taxpayers with an assessment from 2017 or 2018 must already have submitted a request for automatic reduction in order to make use of the form."

On the scope of repayments, the Government said: "The Supreme Court held that the actual return should be determined on the basis of the taxpayer's entire box 3 capital, taking into account both direct and indirect returns, and without deducting the capital yield tax allowance. The government will adhere to this definition of actual return."