On June 6, the Supreme Court ruled on five cases regarding the taxation of income tax in box 3 after the introduction of the Box 3 Legal Recovery Act. In its ruling, the Supreme Court held that the system of the Box 3 Legal Recovery Act and therefore also the Box 3 Bridging Act is contrary to European Law in cases where the notional return is higher than the actual return.

What is the situation?

At the end of 2021, the Supreme Court ruled in the Christmas Ruling that the box 3 system, which had been in effect since 2017, was in violation of the European Convention on Human Rights (ECHR). Legal recovery had to be offered so that the box 3 levy was more in line with the actual return earned.

The legal recovery was provided through the Box 3 Legal Recovery Act for the years 2017-2022. This law has been extended almost identically in the Box 3 Bridging Act, which applies to tax years from 2023 onwards, until a final adjustment for box 3 comes into force (expected from 2027).

In September 2023 and February 2024, two Advocate-Generals concluded on these questions to the disadvantage of the Tax and Customs Administration.

– Jan Willem Lubbers • Tax matters at Rigter

Based on the Box 3 Legal Recovery Act and the Box 3 Bridging Act, savers are taxed on the (approximate) actual interest earned. All other box 3 assets are taxed in the same way as before, with box 3 debts leading to less deduction than before.

The question now is whether the new system of the Legal Recovery Act and the Box 3 Bridging Act is also contrary to the ECHR, especially for the ‘unfortunate investor’ who does not achieve the statutorily attributed return.

Not only the material elements under the legal recovery are being questioned. If, based on the Legal Recovery Act and the Box 3 Bridging Act, a refund of overpaid box 3 tax is granted, the question is whether there is also a right to an interest payment. This interest payment concerns the damage suffered in the period between the payment of the box 3 levy and the repayment of the overpaid amount in box 3.

Supreme Court’s judgment

The Supreme Court has ruled that insofar as the notional box 3 return is higher than the actual box 3 return, this is contrary to European law. It does not matter how large the difference is between the notional return and the actual return.

The Supreme Court has ruled that the notional return of the asset category savings balances generally approximates the actual return. This is different for the other asset categories: debts and other assets.

In the ruling, the Supreme Court provides guidance for the calculation of the actual return earned. When calculating the actual return, the following elements must be taken into account:

1. The taxpayer’s entire capital (including bank balances) in box 3 must be included in the calculation, without deducting the tax-free capital;
2. The actual, nominal return earned is important, without taking inflation into account;
3. Also, positive and negative returns from years other than the relevant tax year should not be taken into account;
4. Not only advantages drawn from assets, such as interest, dividends and rent, but also positive and negative value changes of those assets are relevant for the actual return;
5. Unrealized value changes also belong to the actual return; and
6. Costs are not taken into account, but interest on debts belonging to the capital in box 3 is.