According to economists Aart Gerritsen (Erasmus School of Economics), Ruud van den Dool (Nyenrode Business University) and Bas Jacobs (VU Amsterdam), the reform of Dutch capital taxes in “Box 3” would move in the wrong direction if the government ultimately opts for a realisation-based capital gains tax. In an article for Dutch economics journal ESB, they argue that an accrual-based capital gains tax, under which increases in asset values are taxed annually, provides a stronger foundation for the new system of capital taxes.
The Dutch House of Representatives previously approved a new law on capital taxation, under which an accrual-based capital gains tax becomes the default approach. An exception applies to real estate and shares in start-ups, for which capital gains would only be taxed upon realisation. The government now views this legislation as a potential stepping stone towards a full realisation-based capital gains tax system.
According to the authors, such a shift would be undesirable. They argue that a realisation-based capital gains tax encourages investors to engage in strategic behaviour, such as delaying the sales of assets in order to avoid or reduce tax liabilities. This would distort investment decisions and generate welfare losses. The system would also create differences in effective tax burdens between savers and investors in shares or real estate.
In addition, Gerritsen, Van den Dool and Jacobs contend that a realisation-based capital gains tax would be less equitable. Individuals with smaller levels of wealth are relatively more likely to save, while larger fortunes are more often invested in shares and real estate. As a result of deferral advantages, wealthier households would effectively pay lower tax rates.
The authors further emphasise that an accrual-based capital gains tax is practically feasible and legally robust. Nevertheless, they see scope for improving the current legislative proposal. They advocate for full loss relief provisions and additional measures to prevent tax deferral for real estate and privately held businesses. Their conclusion is clear: the government should maintain its current course and retain the accrual-based capital gains tax as the foundation of the new Box 3 system.
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For questions, please contact Ronald de Groot, Media & Public Relations Officer at Erasmus School of Economics: rdegroot@ese.eur.nl, +31 6 53 641 846.
