Background tax authorities
The implications of the new box 3 levy
The Supreme Court ruled last week (24 December) that the current structure of taxation in box 3 in the tax system is in violation of the European Convention on Human Rights (ECHR). Since 2017, the tax due has been determined on the basis of a fictitious return for savers and investors, which leads to high costs for savers in particular in relation to the actual return achieved. Although the direct impact for agricultural companies is not great, it may have implications for agricultural entrepreneurs with, for example, equity participations in private, leased agricultural land or a rented second (company) home.
The Supreme Court had previously considered whether the determination of return in box 3 was in conflict with the ECHR. In 2019, the Board also determined that the assumed return to be achieved in box-3 of 4% was unattainable if savers/investors are not prepared to take risk. Even then, the council came to similar conclusions and determined that the tax authorities had to assess objections about the capital gains tax.
Restoration of rights but uncertainty about consequences
With the current ruling, however, the council offers legal redress to the relevant stakeholder, one case from the mass objection procedure. The ruling could have consequences for thousands of taxpayers and offer them tools to reclaim possible overpaid tax. The Board also considers it discriminatory that investors who did take risks but were not successful in doing so are taxed just as heavily as people who did realize a high return on investment.
Although the Council now advises taxing the actual returns, it is still unclear how exactly this actual return should be calculated and what exactly should fall under it. For example, in the old calculation system there is no tax on capital gains, something which, if included in a future assessment, could have significant implications for investors.
The consequences of agriculture seem limited for the time being
Although the consequences for agriculture seem small for the time being, it may have implications for a certain group in the future, according to tax adviser Teo Cazant. "To be clear: we are talking about private assets here and it has nothing to do with assets in the company. The consequence of the ruling is that the box 3 tax will probably be overhauled in the fairly short term. capital will be more central and this will also affect farmers with private wealth. Depending on the specific situation, this can have both positive and negative consequences. Whether it will really bring changes to the tax strategy, we will have to wait and see until it is clear in detail is how the new box 3 will be set up."
However, the box 3 capital is limited for many entrepreneurs in the sector, says Cazant. "We are talking, for example, about the claim against son due to the business transfer, the second company house that is rented out or participations in, for example, FrieslandCampina or ForFarmers that are private." In the future, these assets are likely to be taxed on the actual realized return, rather than on a fictitious return.
"Suppose you receive 4% interest or dividend on documents from, for example, FrieslandCampina that are private for tax purposes and are worth €100.000. Assuming that this is the only asset, someone will pay nothing this year on the first €50.000 (exemption). from €50.000 to €100.000, the tax authorities suggest a notional return/dividend of 1,9% on which 31% tax is paid: €50.000 x 1.9% x 31% = €295. Suppose the exemption remains and tax is paid on the actual realized return, then we arrive at: €50.000 x 4% x 31% = €620. This person will be taxed more than twice as much. A saver with 0% return, however, will soon no longer pay tax. said, the exact details and rates are not exactly clear yet".
Agricultural land in box 3
Cazant does not expect any major changes for agricultural land as private property (box 3): "Including agricultural land in box 3 is of course already very unattractive because of the fictitious yield that is much higher than the rent that is often realized in practice. Although the tax assessment on the If the yield is going to be lower when the actual yield (rental yield) is calculated, it is not yet clear whether and how the increase in value of this land will be taxed in the future. Land in box 3 will therefore probably remain unattractive. a partnership or CV) can benefit from the agricultural exemption for land for the time being."
Until now, the capital gains in box 3 were untaxed. Although there is regular discussion about the fairness of this untaxed capital increase, according to Cazant, it is also difficult to implement in practice. “Taxing capital gains, as described above in the appreciation of land, could also apply to capital gains on, for example, shares/units and real estate. If this is introduced, it means that not only the dividend/return on assets will be taxed, But also the increase in value of these securities. However, this is by no means certain, because it will require a lot of administrative work from the tax authorities. How do you determine exactly the increase in value of different assets? With shares it may still be fairly easy to perform, but how do you determine the value of real estate? And which costs are then deductible from the capital gain (for example maintenance and interest)?
Box 3 levy paid too much
Only after it is clear what exactly box 3 will look like and what rates will apply, more can be said about the exact consequences for individuals. Last week's ruling primarily relates to people with liquid assets in the year 2017 and 2018. That is what this ruling is specifically about. Cazant: "If you have objected under the mass objection procedure, there is a realistic chance that compensation will be awarded. Fortunately, many offices have advised customers to object in the past. Did you not object and the tax assessment for 2017 and 2018 has already been completed? definitive then the chance of a restoration of rights is smaller. However, in response to the Supreme Court ruling last week, the tax authorities have indicated that they are considering compensation for this group, so who knows. Objection still possible. I would also consider objecting for 2019 and 2020, if still possible."
Steve Wissink
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