Box 3 and chain partners

One of the consequences of the Dutch Supreme Court's Christmas Judgement is that the current Box 3 system based on fictitious returns is no longer tenable. For a Box 3 system based on actual returns, the Dutch Tax and Customs Administration needs more information from chain partners. What does this mean for banks, insurers and other chain partners?

Required data supply under new Box 3 system

In the Christmas Judgement of December 24, 2021, the Supreme Court ruled that the current Box 3 system is unsustainable due to violation of the fundamental rights of taxpayers. Among other things, this means that the Box 3 system must be revised. On 14 June 2024, the State Secretary shared with the State Council's Advisory Division the bill on actual return box 3, which introduces a new box 3 system based on actual return. For banks, insurers and other chain partners, this means that they will have to adjust their internal processes and share more information with the Tax and Customs Administration for the pre-completed tax return and for checking the assessment.

The government intends to introduce the Box 3 system based on actual returns from 2026.

Levy based on actual return

In the bill, the Cabinet proposes to design the new Box 3 system as an asset accumulation tax (VAB). This would involve annual taxation of regular income (such as interest, dividends, rents and leases minus expenses) and changes in the value of capital assets (such as price gains or losses on shares and increases or decreases in the value of real estate). Thus, with regard to real estate and shares in start-ups, the government opts for a capital gains tax (VWB), whereby only regular income and capital gains (on the sale of an asset) are taxed annually. The reason for opting for an asset accumulation tax is, among other things, to prevent long-term deferral of taxation.

Consequences for chain partners

The new Box 3 system is accompanied by additional obligations for chain partners to supply data for the pre-completed tax return and for the Tax and Customs Administration to check the assessment. The State Secretary recognizes that a transition to an actual return system will have a significant impact on financial institutions. This is because they will have to supply more data and in some cases earlier data to the Tax and Customs Administration.

Timeline

By 15 March 2025, the bill must be passed by the House of Representatives so that chain partners can prepare in time for adjustments to their systems for required data deliveries. At that point, the bill will be fixed - in the sense that no more amendments can be tabled - and the details of the data to be supplied by the chain partners can be determined and data supply agreements can be concluded. To do so, the bill must be pending before the House of Representatives by 21 September 2024. In order for the system to enter into force by 2027 and to keep to the current timetable, the bill must be passed by the Senate by 31 December 2025.

Step	Duration	Start	End
Specification	7 months	12-2024	06-2025
Realisation process chain Partners	1.5 year	07-2025	12-2026
Reporting	2 months	01-2027	02-2027
Test phase Pre-completed tax return data	1 year	03-2026	02-2027
Fully correct data collection 2027	1 year	03-2027	02-2028

PwC research into data possibilities

At the request of the Dutch Ministry of Finance, PwC carried out research in 2021 into the possibility of levying Box 3 tax on the basis of actual returns. This study shows which data points are available and necessary to realise taxation based on actual returns. A distinction was made between an asset accumulation tax (VAB) and a capital gains tax (VWB). First of all, this study shows that a capital gains tax (VWB) is more feasible than an asset accumulation tax (VAB). Furthermore, the conclusion is that the feasibility of an actual return tax differs per category of assets. For instance, the enforceability for the categories of immovable property and other assets is lower than the enforceability for the categories of bank and savings products, investments in financial instruments, capital and annuity insurances and debts and receivables. For the latter three categories, the required data are generally available from (potential) chain partners and taxpayers.

The conclusion is that although taxation based on actual returns is more complex than on a flat-rate return, it is certainly possible. The adaptation of the processes of existing chain partners and the connection of new chain partners are crucial for the pre-completed return and the assessment by the Tax and Customs Administration.

Conclusion of PwC's research by asset class

Explanation of the above graph:

Explanation 100-score IST-position

For the purposes of this study, the IST position is assumed to have a score of 100. The VAB and VWB scores, respectively, provide insight into the difference in feasibility compared to that IST position. The scores thus assigned to the basic positions and asset classes indicate a ranking. We emphasise that the assessment of the feasibility of the IST position itself falls outside the scope of our study.

Explanation of practicability

In this study, practicability was tested, which for this study means the availability of data. The concept of executability does not include compliance (e.g. the administrative burden of a regulation) and enforceability (e.g. the extent to which supervision can be exercised) as these concepts are defined in the assessment framework of the Dutch Council of State.

Data CGT = Capital Gains Tax (scale 0 to 100)
Dates WAT = Asset Accumulation Tax