New box 3 system 2025: data supply by chain partners

09/05/22

With the Judgment of 24 December 2021, the Supreme Court labeled Box 3 as untenable due to violation of the fundamental rights of taxpayers. This means that - in addition to restoration of rights for the current and previous years - box 3 must be revised. On 15 April 2022, the Secretary of State presented the outlines of a new box 3 system, based on actual yield. For banks, insurers and other chain partners, this has major consequences for the information they will need to share with the Tax Administration.

You can read about the consequences for private individuals, the options for restoration of rights for the years 2017 up to and including 2022, and the possible temporary design of box 3 in 2023 and 2024 in our Tax News Update ‘Box 3: compensation until 2024, new system from 2025’.

What does this mean for chain partners?

The cabinet proposes to shape the Box 3 system as of 2025 as a capital growth tax, with annual taxation on regular income (such as interest, dividends, rents and leases) and the accrued value of capital assets (such as price gains or price losses of shares and appreciation or depreciation of real estate).

By its very nature, a tax based on actual yield is more complex than the current flat-rate system, and more data is also required than under the current flat rate system. This has major implications for banks, insurers and other chain partners.

With the intended entry into force per 2025, financial institutions must have their internal systems operational by 31 December 2024 in order to register the correct data by 1 January 2025. This data will then be renegotiated to the Tax Administration by 1 January 2026.

Regular consultations are held with chain partners in order to take into account the consequences for these chain partners when designing the new system and the implementation timeline.

Below you can read more about the intended design of box 3 as of 2025 and then in more detail how it will impact you as a chain partner.

Box 3 as of 2025: tax on actual yield

The government proposes to design the new box 3 system as a capital growth tax, whereby the regular income (such as interest, dividends, rent and leases minus costs) and the value development of capital assets (such as price gain or price loss of shares and value increase or decrease of real estate) are taxed annually. Thus, a capital gains tax, in which only regular income and capital gains (on the sale of an asset) are taxed annually is not proposed. The choice for a capital growth tax was made, among other things, to avoid lengthy deferral of taxation. At the request of the Ministry of Finance, PwC previously conducted research into the possibility of levying box 3 based on actual yield. That study concluded, based on the availability of data, that a capital profit tax is more feasible than a capital gains tax. The basis of box 3, or the composition of assets in box 3, will remain the same.

Real estate

For real estate, another temporary rule will apply from 2025. The yield on real estate consists of the annual change in value of the real estate and the regular income, such as rent and lease. The income such as rent and lease from immovable property will be taxed under the new system according to the actual yield. However, even in 2025 not enough data is available to tax the actual annual change in value. For example, the WOZ (Real Estate Valuation Act) decree becomes available too late to serve as a basis for the box 3 valuation. Therefore, for the time being a fixed amount will be used that is based on the yield of only immovable property. Thereafter, the transition to a levy based on actual yield will be made as quickly as possible.It will be necessary to examine what other data can be made available with the help of chain partners. In this context it is relevant to what extent the information position of the Tax Administration regarding income from immovable property can be improved. This is in line with PwC's earlier study, which concluded that the feasibility of a tax on actual yield differs per asset category. For example, the feasibility for the categories of immovable property and other assets is lower than the feasibility for the categories of bank and savings products, investments in financial instruments, capital and annuity insurance and debts and receivables.

Receivables and debts

Interest received on receivables and interest paid on debts will be included in box 3 income (positive and negative income respectively), as will changes in value that occur when there is a downward revaluation, a remission or currency differences. An upward or downward revaluation of a receivable leads to a capital change only for the creditor. With regard to a waiver of debt because of poor financial circumstances on the part of the debtor, an exemption for that debtor is being considered.

Loss offset

There will probably be an option to set off box 3 losses against box 3 profits. This is still under consideration, as are the loss offset periods.

Tax-free income, rate and exemptions

The use of a tax-free capital allowance in a system of actual yield with different categories is complex. A tax-free income allowance per tax partner is therefore better suited. The amount of the tax-free income allowance has yet to be determined. The design (for example a flat tax or a progressive rate) and the rates still have to be decided as well. The current exemptions, such as those for green investments, will in principle be retained unless this is not logical or desirable under the new system.

Further legislative process and entry into force

With tight planning, a draft bill could be presented for consultation as early as a few months from now. Any interested party can respond to this internet consultation. After that, the final bill will be submitted to Parliament. The subsequent parliamentary process should be completed in 2023. The implementation in the Tax Administration's systems could then be ready in time for the legislation to take effect as of 2025.

New box 3 system: impact for chain partners

For chain partners, the new box 3 system is accompanied by additional obligations regarding the provision of data for the pre-completed tax return and for the inspection of tax assessment by the Tax and Customs Administration. Based on legislation, the Tax and Customs Administration is responsible for the preparation of a data specification that provides an overview of the data to be supplied by the chain partners. The Tax and Customs Administration will be able to draw up the specifications once the legislative process has been completed and the details of the new legislation are available.

Based on the estimation of an expert, it will take chain partners approximately 1,5 years to set up the systems to share the data. The aim is to transform of the systems according to the following timeline:

Step	Duration	Start	End
Specification	7 months	12-2023	06-2024
Implementation process chain partners	1.5 year	07-2024	12-2025
Data signaling	2 months	01-2026	02-2026
Test phase for precompleted declaration data	1 year	03-2025	02-2026
Complete and correct acquisition of data 2026	1 year	03-2026	02-2027

The State Secretary expects that for various assets, including bank and savings products and investments in financial instruments, the transition to the new system will be possible as of 2025. Based on the discussions between the Ministry of Finance and the Dutch financial sector, it is expected that the data required for the new box 3 system can be retrieved and made available on an annual basis.

It requires further research to see what the consequences of the transition to a levy based on actual returns will be on the current data supply under box 3 for the calculation of benefits and how this data supply can be guaranteed in the new system.

The State Secretary realizes that a transition to a system based on actual returns will have a considerable impact on financial institutions, as they will have to provide more data to the Tax and Customs Administration. The drafting of specifications for the reporting of information and the coordination with the financial institutions will, therefore, have to start before the end of 2023. Otherwise there will not be enough time to adjust the administrations of the financial institutions.

The financial institutions must have their administrations operational by 31 December 2024 in order to be able to register the correct data by 1 January 2025. The data will then be reported to the Tax and Customs Administration on 1 January 2026. The State Secretary will - in consultation with the chain partners - determine to what extent the suggested transition period is feasible. It is important to note that with a levy based on actual returns for the tax year 2025, data for the period 1 January - 31 December 2025 are essential. On this point, the new system differs from the current system, as currently taxation is based on the capital position on 1 January of a given tax year. Consequently, there will only be a short period of time between the availability of the required information and the start of the tax return period in March of the following calendar year. Due to this short period of time, the State Secretary does not exclude the possibility that the data provided by chain partners are incorrect and incomplete, when the pre-completed tax returns will be distributed.