The Supreme Court has now ruled, in respect of the years up to and including 2016, that the flat-rate return in box 3 results in an excessive burden, but has refused to grant redress. See our article Supreme Court rejects flat-rate return under Box 3.
The tax tribunal generally does grant such redress when it can be demonstrated that an individual is facing an excessive burden. However, it is not easy to provide sufficient evidence to support this.
Excessive burden on an individual
The party concerned in a case recently heard by the Court of Appeal in The Hague case makes a valiant, but unfortunately fruitless, attempt. In his 2016 income tax return, he declares bank balances of €230,519 in Box 3. This, of course, relates to the balances in his bank accounts as at 1 January 2016. The flat-rate return in box 3 amounts to €8,243 (the tax being €2,472).
The interest actually received in 2016 amounted to just €832. However, the tax court has since ruled on several occasions that even a tax burden, relative to the actual interest, of (2,472 / 832) * 100% = 297% does not in itself constitute an excessive burden. To determine this, the taxpayer’s overall income and financial position must be taken into account.
Repayment of mortgage debt
On 28 January 2016, just under a month after the Box 3 reference date, the individual repays the mortgage on his own home. As a result, the balances in his bank accounts fall by €140,764. The (flat-rate) return on the remaining balances would amount to just €3,054. Calculated on that amount, he pays no less than 81% in income tax (2,472 / 3,054). And he regards this as an individually excessive burden.
However, the Court has ruled that, for Box 3, the assets as at the reference date (1 January 2016) are to be taken as the basis. Subsequent changes, whether positive or negative, are no longer relevant when determining the tax liability. This is inherent in the legislature’s decision to levy tax on a reference date.
The proceedings do not address the fact that, after 28 January 2016, the interested party was no longer required to pay interest on their mortgage. It is highly likely that a penalty interest charge was paid when the loan was repaid.
Planning
Of course, the person concerned would have been better off repaying their mortgage on (or before) 31 December 2015. In that case, the amount of the repayment would no longer have formed part of the balances in their bank accounts on the reference date, 1 January 2016. The proceedings do not reveal why the repayment was not made until January 2016.