A-G Wattel concludes: law on restoration of rights box 3 violates fundamental rights On 18 September, Advocate General Wattel (hereafter A-G) issued a advice issued to the Supreme Court regarding box 3 proceedings. It follows from the opinion that the A-G considers that the Box 3 Legal Restoration Act still violates the prohibition of discrimination and property rights in the case of owners of assets other than savings. This is because differently-returning or negative-returning investments are still taxed to one positive return.
The Box 3 Legal Restoration Act
On 24 December 2021, the Supreme Court delivered its judgment on box 3 (the Christmas judgment). In this judgment, the Supreme Court ruled that the flat-rate levy on income in box 3 was contrary to European law and the Supreme Court itself provided legal redress. For more information, see our article Supreme Court ruling box 3 levy.
State Secretary for Finance Van Rij some time ago issued a decision published (the Box 3 Legal Restoration Act) describing how the Tax Administration will provide the legal restoration demanded by the Supreme Court in the Christmas ruling. With the Box 3 Legal Restoration Act, the legislator aimed to bring income tax in line with the Christmas ruling. Read here more on the Box 3 Legal Restoration Act. There is a pilot process launched against this legislation, now considering that the remedial legislation also violates European law.
The case
The case was brought by a married couple with an owner-occupied home and box 3 assets consisting of bank balances, receivables, a second home rented out occasionally and two rented flats. The dispute concerns the couple's share in the reserves of the owners' associations (VvEs). The parties agree that sufficient legal recovery has been provided for all assets except the shares in the VvE reserves. According to the Inland Revenue, these assets qualify as other property and are taxed as investments at a rate of return of 5.38% (2018 rate). The interested party is of the view that the share in the VvE qualifies as bank balance as VvEs are required to keep their reserve in a bank account. According to the interested party, a return of 0.12% should be taken into account. The Arnhem-Leeuwarden Court of Appeal agreed with the couple. The State Secretary appealed this ruling in cassation. The A-G has now issued her opinion.
The opinion
The A-G concludes that there is no legal redress for investors with below-average returns. In addition, the recovery law still favours prosperous investors with high returns. According to the A-G, the restoration of rights should be an actual approximation of the actual return, including the possibility of rebuttal evidence. As this is not the case under the current recovery law, the prohibition of discrimination and property rights is thus still being
violated in the case of holders of assets other than savings. The A-G does not himself come up with a proposal for restoration of law. In the A-G's view, the precise interpretation of what constitutes reasonable reparation of law is reserved for the courts of fact.
Impact
Meanwhile, the tax authorities have already emphatically stated that this A-G's opinion is not yet a final ruling and therefore has no impact on box-3 income.
The Supreme Court is expected to rule in six months. So until then, we will have to wait and see. Last Tuesday, the 2024 tax plan was presented (read here more on this). If the Supreme Court follows the A-G's advice, this means a hole in the national budget over the period 2024-2026 of €4.5 billion a year. It is still unclear how the government intends to solve these deficits if the A-G's opinion is followed.