Outline policy memorandum on box 3 taxation based on actual return has been saved
Outline policy memorandum on box 3 taxation based on actual return
In the Outline policy memorandum on box 3 taxation, the State Secretary outlines the plans for introducing a new box 3 taxation method as of 2025. The Government's starting point is a capital gains tax.
28 April 2022
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- Outline policy memorandum on box 3
- Capital growth tax
- Taxation method
- Immovable property
- Receivables and payables
Outline policy memorandum on box 3
On 15 April 2022, the State Secretary of Finance sent the Outline policy memorandum on box 3 taxation based on actual return (Contourennota box 3-heffing op basis van werkelijk rendement) to the House of Representatives. This memorandum identifies the first elements of a new method of taxation in box 3. In the coming months, a draft bill will be prepared and submitted for internet consultation. The final bill is expected to be submitted to the House of Representatives before the summer recess of 2023. If the legislation is adopted by both Houses of the States-General by the end of 2023 at the latest, the new box 3 regime is expected to be introduced as from the tax year 2025 at the earliest.
Capital growth tax
The Government takes a capital growth tax as its starting point to replace the current flat-rate scheme. Under this regime, tax is levied annually on both regular income (such as interest, dividend and rent) and the realised and unrealised increase in value of assets. The State Secretary believes a major advantage of this regime to be the prevention of long-term deferral of taxation. In addition, taxpayers, banks, and insurers will not be required to keep long-term records of the cost of all assets. However, a drawback of levying a capital growth tax is that taxpayers may not have sufficient liquid resources available to pay the box 3 levy. Another disadvantage of a capital growth tax is that taxpayers must annually determine the value and keep track of deposits and withdrawals in order to be able to determine the capital growth.
All assets currently subject to tax in box 3 will also be subject to the new box 3 tax. Costs related to actual income will be deductible. To restrict the administrative burden, it is still being investigated which costs can be allocated to the income in box 3 with certainty. It will also be possible to roll forward losses from one year to the next within box 3. However, the tax loss carry-forward period is still subject to research. The current exemptions will be maintained, insofar as the new box 3 regime does not give cause to revision or abolition of any exemptions.
The new regime is based on a tax-free income per tax partner, instead of a tax-free capital. The amount of this tax-free income has not yet been determined. The same applies to the level and system of the rate (flat rate or progressive rate).
For the time being, increases in the value of immovable property will still be taxed at a flat rate, because the information necessary to determine such value increases is currently not available in full or in time. For example, as the value for the purposes of the Valuation of Immovable Property Act (WOZ value) on the relevant reference date is determined after the end of the tax year, it is not available in time to establish the change in rateable value for the tax year. However, the flat rate return to be applied will be based solely on the return on immovable property. The State Secretary believes that this will provide a flat-rate return that better approximates the actual return on immovable property than is currently the case.
Receivables and payables
Assets and debts are no longer netted in the new system. Changes in value relating to write-offs, remissions or exchange rate differences of receivables and payables are part of the tax base of the new box 3 tax. A change in the value of a receivable merely leads to a change in equity at the level of the creditor, whereas remission of a debt also affects the debtor's equity position. The extent to which this can produce unintended effects, especially in situations where the debtor is in financial difficulties, is still being investigated.
The information needed to determine the box 3 income will largely be provided by financial institutions, especially regarding bank deposits and securities. It is expected that this information can be collected and provided on an annual basis. However, taxpayers with other assets will probably have to keep the necessary data records themselves.
It is uncertain whether the Tax Administration can provide a pre-completed income tax return for the tax year 2025 that also includes data on box 3 income. The issue is that the data must be available soon after the tax year-end date. It is being investigated whether this is possible for the tax years 2026 and beyond.
Subjects not covered by Outline policy memorandum
The Outline policy memorandum does not elaborate on several subjects that are important for the new box 3 tax, because they require additional research. This concerns, for example:
- Non-arm's length elements in the taxation of actual returns;
- Relationship with gift and inheritance tax when remitting receivables;
- Liquidity effects when taxing unrealised changes in value;
- Components that are split into bare ownership and usufruct;
- Arbitrage effects that may occur due to the changed way of taxing capital income compared to other regimes, such as box 2;
- Position of domestic taxpayers with assets abroad and that of foreign taxpayers;
- The consequences of personal circumstances such as the establishment and termination of a tax partnership, death and migration.