On June 6^th, 2024 the Supreme Court confirmed that taxpayers in the Netherlands can only be subject to box 3 tax based on the actual return of savings and investments. This decision is in line with the famous Christmas decision of December 24^th, 2021, following which the Government introduced a modified box 3 levy in a Decree for the years 2017 to 2025. An attempt at restoration of taxpayer rights by introducing  a flat tax rate on the deemed return on savings and investments. This method was however again ruled discriminatory by the recent decision of the Supreme Court. Consequently, taxpayers may be entitled to compensation for overpaid Box 3 tax if they are able to demonstrate that the fictitious taxed income exceeded the achieved actual return on savings and investments in the years concerned.

Three Different Regimes

Given the circumstances for taxpayers that means that 3 different tax regimes can apply. Depending on the situation one of these regimes may be most beneficial for the taxpayer:

1. The original income tax return filed based on the “old” Dutch tax regime that was ruled discriminatory;
2. The modified box 3 levy – the flat tax rate income tax return introduced after the Christmas decision of December 24^th, 2021;
3. The actual return on savings and investment income as ruled by the Supreme Court on June 6^th, 2024.

If the modified income is lower than the original income tax return filed, the taxpayer may be entitled to compensation. If the outcome of the third scenario is more beneficial, taxation based on actual received return may be more favorable.

The taxpayer can only file a letter of protest against a tax assessment that has not yet been finally raised by the tax office. Alternatively taxpayers can formally (“ambtshalve”) request to reduce the final assessment. The taxpayer must however provide grounds to substantiate the amount of actual return in box 3 as ruled by the Supreme Court.

Achieved Actual Return

The Supreme Court formulated the following rules to determine the actual return:

• The return on all assets should be calculated without the box 3 levy exemption.
• The actual return includes not only regular benefits from assets (such as interest, dividends and rent) but also changes in the value of those assets. This includes positive and negative as well as unrealized movements in value.
• The actual return is taken into account of all assets throughout the year.
• Interest on box 3 debt is deductible, but other expenses are not.
• No inflation correction will apply.
• Positive or negative returns of other years are not taken into account.

Timeframe

• Years 2017 & 2018 – taxpayers should have protested final 2017 & 2018 assessments prior to the Christmas decision or at least formally requested a refund before the end of tax year 2022 (assessment 2017) or 2023 (assessment 2018).
• Years 2019 & 2020 – claims can be submitted if the assessment is not yet final and who requested / or  will request formally the assessment to be reduced. For tax year 2019 this request should be filed before the end of 2024 latest. For tax year 2020 this request should be submitted before the end of 2025.
• Years 2021 & 2022 – In anticipation of the Supreme Court Decision the tax office has delayed the levy of final assessments of tax years 2021 and 2022.
• Years 2023 up to and including 2026 – the taxpayer should calculate whether the actual return calculation is more beneficial than the modified box 3 levy.
• Years 2027 onwards – based on draft legislation realized and unrealized income from assets are taxable and related expenses may be deducted.

Statement Actual Income

The Dutch Ministry of Finance provided an update and timeline in a letter to parliament dated September 2024 explaining when and how the overpaid Box 3 tax can be reclaimed. The aim is for the tax office to start the restoration of rights in the summer of 2025 by issuing a form “Statement Actual Income”. This form will be considered a formal request to diminish the final assessment. In the coming months the tax office will send letters to 2.6 million taxpayers to taxpayers that may potentially be eligible for compensation.