Investors only have to pay tax on the actual returns they have booked on their investments, rather than a fictitious percentage calculated by the tax office, the Dutch Supreme Court said on Thursday.

The long-awaited ruling means that thousands of investors will pay less tax than expected over their “Box 3 investments”, costing the treasury billions of euros.

Junior tax minister Marnix van Rij said earlier he estimated the cost would be €4 billion upfront and billions more euros a year until an alternative system for taxing assets had been worked out.

The ruling is based on five cases in which people had challenged the revised system drawn up by the government, in the wake of a 2021 Supreme Court ruling which said the fictitious tax on assets was in contravention of European law.

Government officials then worked out a temporary, lower tax rate to be used while a totally new system was being developed. But the Supreme Court has now ruled that temporary system is also in conflict with the law on ownership and discriminates between successful and less successful investors.  

For example, in 2022, the Amsterdam blue-chip stock index fell 13.65%, but the tax office used an assumed growth of 5.53% in calculating the tax investors had to pay.

In total, two million people pay asset tax in the Netherlands, but 700,000 of them only have savings. The tax generates some €5 billion a year for the treasury.

Van Rij is 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.