New (temporary) legislation regarding box 3

December 2021, the Dutch Supreme Court ruled that the system of deemed yield taxation of assets in box 3 used until 2017 was, in certain cases, in violation of the European Convention on Human Rights (ECHR). As a result of this verdict, the State Secretary has introduced temporary new legislation.

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Under this new system, the taxable income from savings and investments is more based on the actual composition of the taxpayer’s assets, with a subdivision into three assets categories, each having its own deemed yield percentage: bank/savings and deposit accounts (deemed yield: 0.00% in 2022), other assets 5.53% (2022), and debts 2.28% (2022). The deemed yield percentage for other assets has already been set at 6.17% for 2023. The other two percentages for 2023 will be determined after the end of the tax year.

However, it is currently unclear whether this adjustment of the taxation of assets in box 3 is in accordance with the Supreme Court’s decision: does this adjustment provides sufficient legal rehabilitation and/or does it impose an individual excessive burden? For example, the legislator still relies on average yield percentages instead of the actual yield of the individual taxpayer. As a result, the deemed yield may still be higher than the actual yield earned in certain cases, while the Supreme Court considered this to be in violation of the ECHR.

Furthermore, there is uncertainty about what the actual yield earned exactly consists off. Does it only include the income received from an asset in a year (such as interest, dividends, and rent), or should it also take into account (un)realized capital gains and changes in value? Unfortunately, recent court verdicts from Dutch lower courts do not provide any clarity on this matter and are sometimes contradicting. It is likely to take some time before clarity is achieved, and we are awaiting the Supreme Court’s ruling to provide a clarification.

What to do in 2023?

As long as there is no clarity about the definition of actual yield earned and to prevent a situation where it becomes impossible for you to retrieve the necessary information retrospectively, we advise you to keep track of the actual yield earned on your assets throughout the year and the incurred and related costs. You may need this information when preparing your income tax return for 2023 and it may help you to reduce your Dutch tax liabilities regarding the taxation of your box 3 assets. This includes, among other things:

• Received interest, dividend, and rental income;
• Realized and unrealized gains/losses from share portfolios (including cryptocurrency);
• Change in value of other assets (including receivables, second homes, and investment properties);
• Keeping records of incurred costs related to your box 3 assets (such as advisory and banking fees, interest expenses, insurance, property tax, maintenance costs, etc.).

Spring memorandum 2023

The following measures have been proposed in the spring memorandum 2023:

• Assigning the share in an owners’ association of property and an deposit payment on a third-party account held by a notary as bank deposits instead of other assets;
• Eliminating mutual claims and debts between fiscal partners and between parents and minor children. As a result they no longer need to be reported as other assets and debts (with different deemed yield percentages) in the Dutch income tax return of fiscal partners or the parent(s);
• Equalizing the deemed yield for certain claims and debts in family relationships, such as between parents and adult children;
• Further breakdown of the category other assets into share portfolio, real estate, life insurance policies, periodic payments, taxable net pensions/annuities, and other assets.

Furthermore, the spring memorandum indicates that the implementation of a new box 3 taxation of assets based on actual yield will be postponed from 2026 to 2027.

More from the HBK Update June 2023

• New (temporary) legislation regarding box 3
• Holding on to definitive assessments and objections with income in box 3
• Restructuring box 3 assets before October 1st (valuation date arbitrage)
• Excessively lending act
• Limitations/Abolition of Business Succession Facilities
• Tax authorities will start checking for pseudo self-employment from 2025
• Convert loss from substantial interest into tax credit
• No tax-free allowance for each day working from home
• Repaying Deferred Tax Payments
• MIA and Vamil
• Reimbursement of costs for assistance with filing income tax return for foreign employees
• Co-operating spouses: Co-operating remuneration or co-operating tax deduction?