Box 3 drama

It is that time of year again for filing income tax returns. Following the merger of the Hulsberg and Soest offices, the volume of returns is quite substantial. We have set up a special project team to handle this. We are currently in close contact with our clients, and the common thread running through our discussions is the dramatic situation regarding Box 3. Clients are very uncertain about what this means for their assets. We are expected to be their expert advisers, but sometimes we’re at a loss too.

It all began in 2001 when the box system was introduced. The idea was – and the ministers responsible stated this openly to every camera and microphone – that tax advisers would no longer be needed. In Box 3, a flat-rate return of 4% was assumed, and this determined the basis for taxation. We advisors weren’t worried at all about losing our jobs, and we even called Box 3 the ‘fun box’. It had the lowest tax rate, so it was the most attractive option. And so ‘box hopping’ was born.

Years later, following feedback from the sector that a flat-rate return of 4% was too broad, the legislator introduced a system of differentiated assumed returns. As you can imagine, a flat-rate levy is very practical for the tax authorities. No civil servant is involved anymore; the computer does the work. The Taxpayers’ Association considered this levy to be unfair and argued that it contravened the European Convention on Human Rights (ECHR). This led to a legal battle lasting several years, until the Supreme Court ruled in their favour in December 2021. We refer to this Supreme Court ruling as the ‘Kerstar’ judgment. The state was accused of defrauding its citizens. That is no exaggeration; it is a very serious allegation. All hands on deck, government, to repair the damage caused. But they were already supposed to do that in Groningen and in the case of the benefit parents. None of these three redress schemes seems to be coming to a conclusion. Zero decisiveness.

What happens next?

The government’s first recovery bill was also submitted to the Supreme Court, where it met with an equally resounding rejection. Well, it seems the government is a stubborn one, too. Various state secretaries have since been working on a solution. Now, an amendment to the law has finally been passed by the House of Representatives, to come into force on 1 January 2028. But don’t get too excited: the newly formed government will soon be amending this law again, and the Senate has announced that it intends to take its time to thoroughly examine the effects of the legislative change due to come into force on 1 January 2028.

People who have overpaid because the flat-rate return is higher than the actual return can claim a refund if they can provide evidence of that lower return. To do so, they need our support, and that costs money. It is incomprehensible that the government, which caused the damage, does not compensate for the additional loss resulting from its failure. We do everything we can to support our clients through this process and to recover every last penny. What particularly troubles us is that the Supreme Court has ruled that unrealised capital gains on your assets count towards the actual return. Our highest court is following the government’s misguided lead. And we are all expected to know the law.