Bill on the Box 3 Rebuttal Scheme introduced in House of Representatives

Box 3 levy still discriminatory

On 24 December 2021, the Supreme Court ruled that the way in which the box 3 levy has been designed since the year 2017 violates both the prohibition of discrimination (art. 14 ECHR) and the right to peaceful enjoyment of possessions (art. 1 FP ECHR). Legal redress was provided through an alternative return calculation based on the so-called fixed-rate savings option.

However, on 6 June 2024, the Supreme Court ruled that this legal redress also fails the test. In particular, the return calculation on possessions other than savings is still discriminatory. The difference in tax treatment between successful and less successful investors is still significant, without this being sufficiently justified.

The Supreme Court even took this one step further and ruled that the above likewise applies to the Box 3 Bridging Act, as the latter is based on virtually the same principles. In this respect it does not matter how big the difference between the fixed-rate and the actual return is.

On 20 December 2024, a number of other judgments addressing the box 3 legal redress was pronounced. The Supreme Court took this opportunity to clarify the return calculation on dwellings in box 3.

Box 3 Rebuttal Scheme Act

Following these judgments, the government decided to introduce a rebuttal scheme in box 3. To this end, a bill was introduced in the House of Representatives on 14 March 2025, based on the principle that the return calculation takes place in accordance with the statutory regulations in force in the relevant tax year. These are the Income Tax Act 2001 or the Box 3 Legal Redress Act for the years 2017 through 2022, and the Box 3 Bridging Act for the years 2023 through 2027.

If the taxpayer takes the position that the actual return in any year is lower, this must be demonstrated plausibly by using a form provided by the Tax Administration, called the Statement of Actual Return (Opgaaf Werkelijk Rendement, or ‘OWR’). This form is expected to be available from July 2025. Providing rebuttal evidence is open to all taxpayers who were eligible for legal redress under the judgment of 24 December 2021, provided they now file objections or request ex officio reductions on time. Hence, legal redress does not cover income tax assessments that were already irrevocably determined on 24 December 2021.

Legal redress based on actual return

Substantively, the legislator is looking to closely align with the legal rules formulated by the Supreme Court in 2024, regarding the legal redress to be granted:

• All assets belonging to Box 3 must be taken into account, even if they were not acquired until during the year.
• The nominal return in one year is key, without taking into account inflation. Results from other years are excluded from the comparison.
• The actual return includes both regular benefits from and changes in value of possessions and debts in box 3, but is at least nil. Expenses are not eligible for deduction, with the exception of interests on debts.
• As for the moment when regular benefits are earned, this is aligned with the cash accounting system. Non-arm’s length transactions can be adjusted to arm’s length conditions.
• The own use of box 3 properties is excluded from the levy until the year 2025. The Supreme Court argued that the legislator needs to provide rules for this. These will now be implemented, but not retroactively. The market rental value must be taken into account for the years 2026 and 2027, i.e., the rent that can be stipulated when letting under normal circumstances.
• The change in assets in any year is determined by reducing the fair market value of the possessions and liabilities in box 3 at the end of the year by this value at the beginning of the calendar year. Next, the outcome will need to be adjusted for the value of deposits and withdrawals made during that year.
• Determination of the (un)realised changes in value with respect to residential property is aligned with the WOZ system. The initial value is the WOZ value (the value for the purposes of the Valuation of Immovable Property Act) determined for the levy year (value reference date: 1 January of the previous calendar year). The final value is the WOZ value of the following calendar year (value reference date: 1 January of the levy year). On disposal or acquisition during the calendar year, the change in value is allocated to the seller and the buyer in proportion to time.
• Expenditures relating to improvement or expansion of assets must be treated in the same way as the original investment. As a result, an increase in value resulting from additional investments does not qualify as a return. However, the taxpayer must demonstrate reasonably that this situation occurs. When it comes to residential property this is a complex issue, because the change in value is based on the difference in WOZ value at the beginning and the end of a year. There is only room for rebuttal evidence if the WOZ value has been determined by applying Article 18(3)(c) of the Valuation of Immovable Property Act, in accordance with the condition of the property at the beginning of the year for which that value applies.
• When determining the actual return, existing exemptions in Box 3 must be taken into account, with the exception of the tax-free assets. The exempt component of the actual return on green investments is determined by dividing the exempt amount by the total green investments on the reference date. However, the tax free allowance and the debts threshold are disregarded.
• If the resident tax liability arises or, contrarily, ends in the course of the year, the capital gain in a year will be determined in accordance with those dates.
• Tax partners can divide the joint base for savings and investments, i.e., also the actual return in a year is allocated to both partners based on this allocation key.

As far as the Box 3 Legal Redress Act is concerned, the rebuttal scheme in Box 3 will be retroactive to 1 January 2017. For the Box 3 Bridging Act, this will be 1 January 2023. The State Secretary for Finance is pushing the House of Representatives to urgently discuss the bill so as to eliminate the shortcomings in Box 3 as identified by the Supreme Court.

Source: Parliamentary Papers II 2024/2025, 36 706, no. 2 (bill) and no. 3 (Explanatory Memorandum)