A dispute before the District Court of The Hague focuses on the question of whether a woman has been offered sufficient legal redress in the treatment and assessment of her taxable income in box 3. The court notes that both the Box 3 Redress Act and compensation based on actual return achieved does not lead to a reduction in the assessment.
In her income tax return for 2017, a woman indicates that she has a taxable income from savings and investments of € 34,589. The immovable property includes an office building in the Netherlands that is intended to be rented out.
The immovable property abroad concerns an apartment right and a share in a holiday home in Sweden that are held in shared ownership with family members and are not rented out. In addition, the woman has a property in Belgium that was rented out in 2017. For the immovable property in Sweden and Belgium, she has submitted a request for a reduction due to deductions taxed elsewhere.
The IB/PVV assessment for 2017 has been imposed in accordance with the submitted tax return. The 30% income tax due on the income of € 34,589 amounts to € 10,376. Less the deduction due to tax elsewhere, which the inspector calculates at € 7,541, a balance of € 2,835 must be paid.
No legal remedy offered
The woman states that she was wrongly denied legal redress, that only the actual return may be taxed and that only the net benefits should be taken into account. In addition, the woman states in her appeal that the deduction taxed elsewhere has been calculated too low, because the progressive rate of box 3 is taken into account in the calculation.
Because, she believes, this leads to a tax on capital growth, the Netherlands has created its own tax option, contrary to the tax treaties with Sweden and Belgium. According to her, not granting a full exemption is contrary to the freedom of capital movement.
The inspector states that legal redress must be offered on the basis of the Box 3 Redress Act, but that in this case this does not lead to a reduction of the IB/PVV assessment 2017. He also believes that the deduction taxed elsewhere has been correctly determined.
He denies that the way in which double taxation is prevented is contrary to the right to free movement of capital. The legislator, he states, deliberately did not opt for a system with a fixed return per asset title, so that the amount of Dutch tax applicable to this asset cannot be determined per asset title.
Due to the woman’s total income and assets position, there is no individual and excessive burden.
Unrealized increases in value
The Court of The Hague confirms the inspector’s opinion that the calculation of the box 3 income, according to the Box 3 Restoration of Rights Act, does not lead to less box 3 tax for the woman. Even calculating the actual return does not result in a tax reduction. In the court’s opinion, it is also true that actual achieved returns can include unrealized increases in value.
After all, the woman’s tax return for 2018 has shown that there was an increase in the value of the immovable property in the course of 2017. Even if the costs assumed by the woman are taken into account, the court is of the opinion that on balance and in total there is a value increase of € 62,600. Compensation based on actual returns would therefore not lead to the legal restoration desired by the woman.
Taxing power
With regard to the discussion about double taxation, the court explains that the fact that the Netherlands includes foreign immovable property in the basis of the capital gains tax and determines the benefit therefrom on the basis of a (progressive) fixed return has no influence on the taxing power of Sweden and Belgium respectively.
Moreover, the court adds, the Netherlands, as a state of residence, is entitled to include income from immovable property in the tax base before applying double taxation.
The manner in which the Netherlands grants the deduction to prevent double taxation also does not lead to a difference in treatment between foreign real estate and Dutch real estate, the court concludes.
The woman’s appeal must therefore be declared unfounded.
District Court of The Hague, ECLI:NL:RBDHA:2023:14120