Box 3 income and the Supreme Court ruling. What does it mean?
The Dutch Supreme Court ruled on 24 December 2021 that the box 3 tax (income from savings and investment), in effect since 2017, violates the European Convention on Human Rights (ECHR).
What is the Box 3 tax system? And what does the Supreme Court ruling mean exactly?
The investment yield tax system
You are charged tax for income received from savings and investments (box 3). For instance interest gains from savings and yield from shares you hold. The income is calculated on the assumption that part of the assets is saved and partly invested. This combination of savings and investments is called the asset mix. For both parts of the asset mix, the return was legally determined. The Dutch tax office did not take into account the actual return. The actual composition of the asset mix was also disregarded. This resulted in a so-called notional or fictitious return (or yield).
Ruling of the Supreme Court
Taxpayers started proceedings on the box 3 tax system based on fictitious returns. They felt it was unfair that they had to pay tax on returns that they did not actually achieve (e.g. because interest received on savings was lower than the nominal 4 percent charged by the Dutch tax office). The Supreme Court sustained the taxpayer's claim.
Read more about the 2017 and 2018 rulings on the box 3 tax on the Supreme Court's website (only available in Dutch).