Supreme Court judgment on box 3 levy25 February 2022
As you may have heard in the press, the Supreme Court ruled on 24 December 2021 that the box 3 tax based on a fictitious return on investment in 2017 and 2018 is disproportionately high and is therefore in violation of the European Convention for the Protection of Human Rights (ECHR). The Supreme Court ruled that a relatively heavy financial burden is attached to the choice not to go into risky investment of assets. Furthermore, the fixed asset mix introduced in 2017 has a discriminatory effect on those who have had bad luck with their investments and nevertheless are taxed relatively heavily. That is why the Supreme Court offers legal redress in the sense that for the years 2017 and 2018 the tax should be based only on the actual return on investment. After the negative court decisions for earlier years, this finally means a positive outcome for the tax payer with saving accounts and hardly any interest.
Decision in mass appeal procedure
At the beginning of February, the Tax Office published the collective decision in the mass appeal procedures against the box-3 tax for 2017 to 2020. All 200,000 appeals have been allowed. This does not yet mean that the participants in the mass appeal procedures now know how much they will get back and when. Neither is anything known about possible compensation for other taxpayers who did not appeal against the box-3 levy. The cabinet has promised to provide a substantive response no later than 1 May 2022 on how restoration of rights can be offered over the past few years. For most situations involving a substantial box 3 tax, we have already raised appeals over the past few years. Further action is only meaningful after we know more about the promised response from the Tax Authorities.
New box 3 levy
According to the cabinet, a box 3 levy based on the actual return on investment cannot come into effect until 2025. However, emergency legislation to adjust the box 3 levy is currently being worked on, which should provide a solution for the intervening years. This could include, for example, fictitious interest rates that are more in line with the actual returns and based on the actual composition of the assets. The cabinet is planning on sending a memorandum of direction for the recovery operation to the parliament before 1 April 2022.
Moreover, it is clear that a new system will certainly not lead to advantages for all taxpayers. Taxing actual returns can also mean taxing capital gains from securities and real estate, which have not been taxed as such until now. Besides, a number of parties state that the coverage for the measures should come from the same category of taxpayers.
Future assessments and tax returns
The ruling of the Supreme Court has consequences for 2021 and later years too. No final assessments are currently sent to taxpayers with box-3 capital. An exception will only be made if prescription is imminent or if there is an interest in the taxpayer. As soon as it is clear what the recovery will look like, these assessments will be issued. Taxpayers will be informed about this.
The Tax Office asks taxpayers to pay the provisional tax assessment 2022. They are also asked to simply submit the 2021 tax return, stating the box-3 capital as before. Possible compensation will be worked out later. Taxpayers with box-3 assets will probably receive their assessment for 2021 after 1 July 2022, even if they have submitted their 2021 tax return before 1 April.