“Advocate General deals a blow to capital gains tax” is the headline in this morning’s Financieel Dagblad. But will this bomb actually go off?
Box 3
The reason for this article is the conclusion from the Advocate General (AG) at the Supreme Court in one of the cases currently being heard as part of the mass objection proceedings concerning the question of whether taxation under Box 3 is compatible with European law.
We are not talking about a wealth tax here; that was abolished decades ago. This concerns the levying of income tax on income from savings and investments – in short: Box 3. The procedure relates to the 2017 tax year. This is the first year in which taxable income is determined on a flat-rate basis based on a mix of assets.
80% Savings
On 1 January 2017, the taxpayer involved in the proceedings had assets totalling approximately €1 million. Of this amount, 80% consists of savings bearing low interest. The Tax and Customs Administration does not assess him for the low interest received on these savings accounts. His income is calculated on a flat-rate basis, based on the assumption that only 21% is invested in savings. As a result, the flat-rate income on which he pays income tax is much higher than his actual income.
The Advocate General concludes that this fails to take sufficient account of the taxpayer’s own choice regarding the investment of their assets. Consequently, the scheme, as a whole, is contrary to the right to property and the principle of equality. These are principles enshrined in European law.
Is the bomb going to go off?
That remains the crucial question. And to answer it, we really must wait for the Supreme Court’s ruling. The Supreme Court has, in fact, previously ruled that the system for calculating income in box 3 up to and including 2016 is contrary to European law. At the same time, however, the Supreme Court ruled that it is not the role of the tax court to ensure redress. That is a matter for the legislature. And the legislature has recently indicated that it will leave this to the new Government. Might that prompt the Supreme Court to take up this challenge itself after all?