Is that of any use to us? Not much, given that the Supreme Court takes the view that the courts should exercise restraint in relation to the legislature. In other words, the Supreme Court leaves it to the legislature to amend the law on this point.
Flat-rate return: 4%
The Supreme Court recently ruled in the case brought by the Taxpayers’ Association tensioned test procedures relating to the tax years 2013 and 2014. In those years, the flat-rate return in box 3 is: 4%.
With effect from 1 January 2016, the flat-rate return to be taken into account for Box 3 has been amended. This amendment was prompted by similar rulings by the Supreme Court in test cases relating to tax years prior to 2013.
We explain the flat-rate return for 2019 in our article Box 3 returns for 2019. In particular, a significantly lower (flat-rate) return is applied to taxpayers with modest assets in Box 3. However, Box 3 millionaires are taxed at a considerably higher (flat-rate) return.
Excessive burden
The basis of the legal proceedings is the question of whether the flat-rate levy is contrary to European law. This is the case where the levy, based on the flat-rate return, results in an excessive burden. This may be the case:
- at the level of the (tax) system;
- for individual taxpayers.
The test procedures concern the question of whether there is a systematic excessive burden. This is the case when:
- the return assumed over a longer period of years (of 4%) is no longer achievable and;
- Taxpayers, partly due to the applicable rate, are faced with an excessively heavy burden.
The Supreme Court has ruled that, in 2013 and 2014, it was not possible for taxpayers to achieve a return of 4% in the longer term without taking on (significant) risk. According to the Supreme Court, the low returns – including those on savings accounts – can no longer be regarded as incidental.
Partly in view of the rate (30%), taxpayers will face an excessive burden in 2013 and 2014. The average return to be achieved is lower than 1.2% (30% * 4%).
Tax returns for 2018
The appeal proceedings concerning the flat-rate return in Box 3 are conducted for each tax year. These proceedings are still ongoing for the years 2015 to 2018 inclusive. The Tax and Customs Administration has declared that the so-called ‘mass objection’ applies to these proceedings.
Up to and including 2016, this means that a positive outcome will affect all taxpayers who have paid income tax on box 3. With effect from 1 January 2017, the mass objection will merely serve to simplify matters for the Tax and Customs Administration. If you wish to benefit from a positive outcome of a test case, you must lodge a (pro forma) objection to your final income tax assessment yourself in good time.
Individual excessive burden
If you consider that the tax in Box 3 constitutes an excessive burden in your individual circumstances, you cannot benefit from the pilot schemes. In that case, you must lodge an objection for your specific circumstances and provide grounds for it. You should bear in mind that the Tax and Customs Administration will take your case to court. The outcomes of the proceedings conducted in this context vary.
Amendment to the law
Although the Coalition Agreement states that there are plans to bring the tax in box 3 more into line with the actual return, it does not currently appear that the Rutte III Government will be able to achieve this during its term of office. We therefore expect that we will be stuck with the current flat-rate tax for a few more years.
The tax court has once again stated that it does not consider this to be its remit. We suspect that this will also be the outcome of the test cases for the years after 2014. However, there is of course no harm in lodging a pro forma objection. Furthermore, depending on your actual return, it remains advantageous to avoid Box 3. This can be achieved through a private limited company (BV) or an open-ended fund for joint account.