Box 3 taxation on ‘actual’ return on investment

The Dutch Tax Authorities are now approaching taxpayers individually for each year in which they determine that a declaration for Box 3 taxation on ‘actual’ return on investment basis could be beneficial (instead of box 3 taxation on ‘deemed’ return on investment basis).

The form for declaring actual return can be found in the personal log-in account on the "Mijn Belastingdienst" (My Tax Office) environment. If desired, a paper version of the form can be requested by phone. As a tax advisor, Taxperience has its own software to prepare and submit this declaration.

To complete the form correctly, various information is required, such as:

1. Overview of purchases and sales of securities and other assets, including (un)realized returns;
2. Bank statements to determine (un)realized currency results;
3. WOZ (property valuation) statements or comparable value reports for owned (rights to) domestic and foreign real estate and/or land;
4. Bank statements/annual summaries to confirm received interest and dividends;
5. Statements regarding paid interest and financing costs.

While this information is increasingly collected and made available by Dutch banks and asset managers for their clients, it may be more difficult to obtain in the case of foreign assets, and such information gathering should therefore be initiated in a timely manner.

If you are unsure whether submitting a declaration of actual return is beneficial for you, a general checklist is available on the Tax Authorities’ website. It can be accessed via this link.

However, the following should be taken into account when using this checklist:

• The declaration concerns the total actual return for the relevant year compared to the total notional income for that year; the Tax Authorities do not assess per asset.
• In the case of (only) bank and savings deposits, the actual return is often not lower than the notional return for the years 2021 to present. For the years 2017 to 2020, this may differ.
• For securities, depending on the composition of the portfolio, the actual return is often not lower than the notional return. However, the tax year 2022 is often an exception due to poor investment results, which may have led to a lower actual return than the notional return.
• For Dutch real estate, (un)realized value changes are determined based on the established WOZ values. For shares in commercial real estate, the fair market value applies. Depending on the rental income received, the actual return is often not lower than the notional return.
• Depending on the composition of the assets, in cases where there is a right to relief from double taxation, the tax burden on the actual return may be higher than previously calculated under the notional return system.
• It is important to note that, according to the current guidelines from the Tax Authorities, the “Declaration of Actual Return” form must be submitted within 12 weeks of the date of the invitation. If Taxperience prepares and submits this declaration, a longer deadline applies, which must be communicated to the Tax Authorities.

Whether it is worthwhile to submit a declaration of actual return will vary per tax year and requires time and a case-by-case review. This is further complicated by ongoing debate in tax practice, as the determination of actual return may not take into account any costs other than financing costs. As a result, transaction costs for securities, annual management fees (as calculated by banks and asset managers), and maintenance costs for rented real estate may not be included in this declaration. To potentially have these costs considered, legal action will likely be necessary again, meaning that after receiving the amended income tax assessment, an objection must be filed and an appeal submitted (with the associated costs).

If you have any questions or would like assistance based on the above, please do not hesitate to contact us.