HOF: vve reserve is savings and not an investment for tax authorities too

Source: Laurens Berentsen and Martine Wolzak, FD.nl

The Arnhem-Leeuwarden Court of Appeal puts a line through two parts of the legal recovery for savers and investors who paid too much wealth tax. The state must reimburse interest on the overpaid tax, the court says. Furthermore, the tax authorities should tax the reserves of Owners' Associations (vve's) lower, namely as savings. Especially the ruling on the tax treatment of assets in the maintenance funds of unions could have far-reaching consequences. If this ruling stands up in the Supreme Court, there is a good chance that flat owners who are members of a vve and compulsorily set aside money for maintenance and contingencies will have to pay less tax on their share of these reserves. Currently, the tax authorities assume for these assets the high return that applies to investments and other assets.

Sufficient legal redress

The court's ruling specifically concerns two houses that a couple bought together with their children. This also gave them a share in the reserves of the life associations, of which they became members as owners. They objected to the 2018 capital gains tax. The appeal focused on the question whether the shares in the vve reserves should be taxed on the basis of the standard return for bank and savings deposits (0.12%), or other assets (5.38%). Unlike the Inland Revenue, the court ruled that the return for bank and savings deposits applied. The justices argued that contributions to vve reserves are usually in a checking or savings account. Using the flat rate of return on other assets as the tax base would not have provided the couple with sufficient legal redress, the court said.

Transfer scheme

This restoration of rights stems from the Supreme Court ruling in December 2021 that the wealth tax as applied since 2017 is contrary to European law. Taxpayers who timely objected to the box 3 assessments for the years 2017 to 2020 have been refunded money if they had paid too much tax under the new calculation method. For the years 2021 and 2022, the restoration of rights applied to all taxpayers in box 3. In the wealth tax bridging scheme, in force since 1 January, the vve reserves again fall into the category of investments and other assets, i.e. with a high assumed rate of return as the basis for the tax of 32%. However, this return becomes untenable if the Supreme Court in cassation follows the judgment of the Arnhem-Leeuwarden Court of Appeal.

Common charges

In a reaction, the Home Owners' Association (VEH) said it was happy with the court's ruling. The Association previously raised the difference in tax treatment between flat owners and other homeowners. Flat owners are automatically members of an association and are obliged to contribute to the reserves, as they have joint costs. If an ordinary homeowner saves money for maintenance, this is also not subject to the return that applies to investments and other assets, VEH said.

Return on interest €805

In a second ruling last week, the Arnhem-Leeuwarden Court of Appeal ruled that the state must pay interest on the excess wealth tax levied from 2017 to 2020. In the case before it, the Court decided that the taxpayer in question should be paid interest of €805 and €881 for the years 2017 and 2018 respectively. Again, the ruling concerns one case. But if the Ministry of Finance waives cassation, or if the Supreme Court follows the Court's judgment, then the approximately 60,000 taxpayers who have been granted legal redress for the overpaid tax can rely on this ruling to seek interest compensation as well.

Financial interests

Taxpayers who are out of luck are still trying to get money back by asking for ex officio reduction of the assessments in question. The government has agreed with interest clubs and professional organisations of tax advisers on a legal test procedure to determine whether the Tax Administration should honour these requests. In response to both rulings, the finance ministry says it is still studying them. However, it is unlikely that the ministry will refrain from going to the Supreme Court. The financial but also implementation interests are too great for that.