The government’s plan for a new interest income tax is not too complex: State Council

The government’s plans to tax savings and investments differently are too complicated and will make everything more difficult for citizens and the tax authority, the State Council said in a statement to the government on Monday.

In June, the Supreme Court ruled that the way the Netherlands taxes savings and investments (Box 3) contradicts the European Convention on Human Rights. The Box 3 tax was imposed based on a fixed, assumed rate of return on savings, stocks and additional real estate. However, because interest rates were very low for a long time, many Dutch people paid taxes on amounts that far exceeded the actual returns on these assets. The Supreme Court ordered the government to come up with a new tax plan where people pay taxes based on what they actually receive.

The government proposed imposing a tax based on actual income, using a mix of capital growth and capital gains tax. In general, assets in Box 3 are subject to capital gains tax, with the exception of real estate and shares in start-up companies, which are subject to capital gains tax. The proposal also provides for a flat-rate approach to regular income from properties that are not rented out all year round.

This will make the Box 3 tax system significantly more complex, the State Council concluded. “This will result in poorer service delivery, limited opportunities for advance advice from a tax inspector and inadequate oversight,” the council said.

The government also relies too much on citizens’ “ability to act,” the council added. The proposed system will force 1.6 million taxpayers to complete a complicated asset comparison each year.

The State Council also criticizes the government’s assumption that tax revenues in the new Box 3 system will be the same as before. “Strict adherence to this principle hinders a careful and holistic assessment of the various interests,” the council said. When determining taxes, the focus must be on legality, not on a target tax amount.

“The government is recommended not to present the bill in this form and to reconsider the design of the Box 3 system,” the State Council said.