The government has suffered another blow in its attempt to reform taxes on savings after the advocate-general said its temporary solution breached the same rules that the Supreme Court cited when it struck out the previous system.

In his formal advice to the court, the advocate-general says the method for calculating interest earned on savings violated the right to property and protection from discrimination, as defined in European human rights law.

Between 2017 and 2022 the government charged a flat rate on all assets above a certain threshold, regardless of whether they were held in deposit savings or investments.

The court ruled that that discriminated against people who chose to hold their savings in cash, which earned virtually no interest during that period because central bank interest rates were at or below zero.

Tax minister Marnix van Rij attempted to fix the problem by separating deposit savings from investments on the tax return form, taxing the latter on an assumed return of 6.17%.

But the advocate-general said that this “fictional” tax rate was still discriminatory because it effectively penalised people whose investments earned less, while those who earned more were undertaxed.

The Supreme Court is expected to follow the advice of the advocate-general, who was asked for his opinion in a case brought by a taxpayer who challenged the tax on the money held in his homeowners’ association’s reserve fund (VVE).

VVE funds, used for maintenance and repairs on communally owned property, are almost always held in low-interest savings accounts, but are classed as real estate investments and taxed as assets.

Capital gains

Tax minister Marnix van Rij said last week he was working on plans to move to a capital gains-based tax system to replace the Box 3 asset taxes, but this will not be ready until at least 2027.

In the meantime the government will have to find another way to tax assets so it can continue collecting the €4.5 billion of revenue it brings in through Box 3 annually.

“While I have confidence in the changes we have made to comply with the court ruling, we are working on various scenarios in case the Supreme Court decides otherwise,” Van Rij said.