The Supreme Court ruled in five judgments that the amending Act has not resolved the Dutch Box 3 system's inconsistency with EU law. In principle, no interest payments are owed on the tax reduction.

Under the Dutch Box 3 system, taxation is based on annually determined notional returns. In its 'Christmas judgment' of 24 December 2021, the Supreme Court held that this system conflicted with Article 14 of the European Convention on Human Rights (ECHR) and Article 1 of the ECHR's First Protocol, as using notional returns as a basis of calculation could result in disproportionate taxation. In response to the Christmas judgment, the legislature introduced an amending Act applicable with retroactive effect from 1 January 2017, and a bridging Act applicable from 1 January 2023. Returns are still determined as notional amounts under these Acts, but are now based on three asset categories: savings, debts and other assets. The idea was that notional returns calculated according to this breakdown would more closely approximate the returns actually generated on assets.

The judgments of 6 June 2024

The Supreme Court held in five judgments that the notional returns mechanism is acceptable for savings. However, according to the Supreme Court, the amending Act does not yet sufficiently reflect taxpayers' actual returns on other assets. As a result, successful and unsuccessful investors are taxed unequally despite their inability to influence their returns. The amending Act therefore does not meet the proportionality requirement under EU law. For this reason, taxpayers are entitled to compensation by means of a reduction of their tax assessment if their actual returns are lower than their deemed notional returns. According to the Supreme Court, no interest needs to be reimbursed on the tax reduction, except if the lost interest is not reasonably proportionate to the tax reduction.

Rules for determining actual returns

In addition, the Supreme Court's judgment provides new rules for determining actual returns:

• Returns must be determined based on all the taxpayer's assets and therefore must not be based on separate asset categories.
• Actual returns must not be assessed based on the assets available at a specific reference date, but based on all the assets that the taxpayer owned throughout the entire financial year.
• Returns must be calculated based on nominal returns, without adjustment for inflation.
• Both direct income (such as dividends, interest and rental income) and realised and unrealised capital gains from the assets must be considered.
• Costs in relation to immovable property must be disregarded, except for interest on debts directly related to the immovable property. 
• Returns generated in previous years cannot be included.

It is up to the taxpayer to demonstrate that actual returns were lower than the notional returns under the amending Act.

Next steps

Current expectations are that a new statutory Box 3 system based on actual returns will not be implemented until 1 January 2027. Until then, it is up to taxpayers to determine their actual returns, both for previous and for future years, using the rules formulated by the Supreme Court. If actual returns are lower than the notional returns, they will be entitled to a reduced tax assessment. Final assessments that result in excessive Box 3 taxation can only be reduced by filing a notice of objection. The Tax Administration has recognised the judgments' implications and will allow taxpayers to provide their actual returns by the summer of 2025. Furthermore, the new Box 3 rules are currently being drafted by the Dutch government.