Finance

Advice: duped savings tax is entitled to a refund

In the case before us, the tax also turned out to be extremely unfair. In fact, one man paid a whopping 339 percent rate.

Complicated Tax

This is due to the particularly complicated way in which the tax is levied. The tax authorities do not look at the actual return on your capital. Instead, the tax authorities assume that small savers have two-thirds of their assets in the bank and one-third invest.

For people with a larger wealth, the Tax and Customs Administration assumes that only 21 percent is in the savings account and the rest is invested. The Tax and Customs Administration then calculates with a fictitious return on savings and invested capital. In 2017 this was 1.63 percent for savings and 5.39 percent for investments. You pay tax on that

339 percent tax

The complainant in this case had almost all of his assets of one million simply in the savings account. As a result, he made a return of 6612 euros in 2017. But he paid no less than 12,705 euros in tax on this: 192 percent.

A year later it was even worse. He had to pay no less than 11,969 euros in tax on a return of 3528 euros: 339 percent.

Sounds complicated, is complicated. But the result is that people who have all their money (or a large part) simply in the savings account are duped. The return on their capital is very low or even 0. But the Tax and Customs Administration assumes that they invest a large part and therefore make much more return than they actually do.

unpacking

According to the Advocate General of the Supreme Court, this is so out of step with reality that it is untenable. Tax is levied on a return that is not there at all. So money is simply taken away. This is contrary to the right to undisturbed enjoyment of property, enshrined in the European Convention on Human Rights (ECHR).

discriminatory

Moreover, the tax is discriminatory, the Advocate General argues. Someone with a high return pays relatively less tax than someone with very little return. This is also contrary to the human rights convention.

The ‘wealth mix’ assumed by the tax authorities, as the fictitious distribution of savings and invested capital is called, should therefore no longer be applied.

Far-reaching consequences

The Advocate General concludes by concluding that the judge ‘can and must provide for the resulting legal deficit’. This means that, as far as the adviser of the Supreme Court is concerned, the complainant must be able to recover too much tax paid through a procedure at the Court of Appeal.

If the Supreme Court adopts the advice, this could have far-reaching consequences, says emeritus professor of fiscal economics Leo Stevens.

“The court can only decide in the individual case, but that has far-reaching consequences for all the others,” said Stevens. This immediately presents the Supreme Court and the Court of Appeal with a ‘great dilemma’. “Do you also have to treat everyone else in a similar way?”

Ultimately, the cabinet will then have to decide whether there will be a general arrangement whereby people can obtain their rights, which will be a gigantic task, or whether everyone will have to go to court themselves. In addition, the state could also take the position that anyone who has not previously reported has lost their chance.

Thoughtful system

All those options are not very attractive, Stevens agrees. But as far as the tax specialist is concerned, the state has brought the problems upon itself. “The cabinet has ignored all advice. What happened to the asset mix in 2017 is ill-considered.”

The system was also overhauled in 2017. Until that time, everyone was calculated with a fictitious return of 4 percent, on which tax was subsequently paid. When that proved unfeasible and unfair, the new system was set up.

“The solution was to add another fiction to it. That everyone was expected to follow the same investment strategy.” According to Stevens, this only further removed the rules from reality.

Intervention needed by lingering politics

Meanwhile, the capital yield tax is beeping and creaking on all sides. The state has been criticized several times by judges because the levy is unfair to many citizens.

Politicians have also been trying for years to arrive at a new system in which the actual yield achieved is taxed. But that is not going to work and the finding of a solution is now left to a new cabinet.

Because this could take years, the Advocate General thinks it is time not only to conclude that the legislation must be overhauled, but also that the courts must intervene to protect citizens against injustice.

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