The richest pay little tax. Is something being done about that in the formation?

Millionaire Fair in the Rai in AmsterdamStatue Marcel van den Bergh / de Volkskrant

It was only a short message, this week in It Financial Daily. The outgoing State Secretary Hans Vijlbrief of Finance (D66) is unable to tackle the options for tax avoidance as planned as of 1 January 2022. An internet consultation on the bill generated so much criticism from various parties that it has to be reconsidered.

It was also the week in which the Danish/Iranian Djaffar Shalchi, founder of Millionaires for Humanity, de Volkskrant argued in favor of taxing millionaires like himself considerably more immediately. And the week in which leaked documents showed that the 25 richest American billionaires pay little or no tax.

The postponement announced by Vijlbrief makes two things clear. Rich people in the Netherlands have plenty of opportunities to avoid tax on their assets, for example by anonymizing assets. Or by using the limited partnership, the vehicle in which Sywert van Lienden has housed his millions of mouth caps. And it is not easy to do something about this quickly, even if the social call for a stricter approach during the corona crisis is getting louder.

small beer

Millionaires in the Netherlands pay (in addition to income tax) a so-called capital yield tax, which increases the higher the capital is. With 1 million euros in assets, 11,259 euros must be transferred to the tax authorities (1.13 percent), with 2 million that is 26,878 euros (1.37 percent), the website calculated. Business Insider. This is based on a fictitious return on savings and investments, whereby savings are taxed less and investments more.

But – although those involved will undoubtedly see this differently – the capital yield tax in its current form is small beer, say various experts. Really great powers are out of the question. For example, directors with their own company can store their millions in box 2 in order to defer or avoid tax payment. The Ministry of Finance found 400 billion euros in this ‘fun box’ last year, more than twice as much as previously thought. These directors can pay themselves a modest standard income of 45,000 euros, while their millions remain untaxed in the BV.

wealth inequality

‘Box 2 invites tax avoidance and contributes to wealth inequality,’ officials wrote in an advisory report for the current formation of a new cabinet in May last year. If nothing happens, they warned, workers will have to pay even more taxes to fill the treasury. It also applies the other way around: if people with wealth are taxed more heavily, the income tax can be lowered.

Because while the housing market and stock exchanges are partying, capital gains are untaxed. This applies not only to the equity when the house is sold, but also to price gains. To put an end to the sleeping wealth of investors piggybacking on the stock market and lucky ones in the housing market, two things must happen, according to experts.

Everything in one box

The first is one box with one rate for all forms of wealth, where income from savings, investments, own home, pension and the own company is taxed at one rate. According to research, if that happens, the rates for working people could drop considerably. “I’ll say it again: all income, whether from work, capital gain or inheritance, should be taxed the same,” the entrepreneur tweeted. Volkskrantcolumnist Sander Schimmelpenninck this week. ‘Working should pay, doing nothing shouldn’t.’

For this, the increase in the value of capital would have to be taxed. Not only the PvdA and GroenLinks are in favor of such a capital growth tax, the outgoing coalition parties D66 and CDA also have it in their election programme. A majority of the House has been asking for tax on the actual return on capital, instead of the fictitious calculation, via the capital yield tax. This would spare savers and allow the really rich to pay a larger share.

An important caveat in this regard is whether the overburdened tax authorities can handle providing figures of actual returns instead of fictitious ones. The government has promised to make announcements about this shortly. Coordinator (and former SP MP) Arnold Merkies of Tax Justice Network NL, an NGO for fair taxes, is currently taking into account that a new cabinet will announce that the tax system will be overhauled, but that the large wealthy will remain unaffected.

dividing line

While in the US the new president Joe Biden – with the help of the pieces leaked this week about the non-paying billionaires – tries to tax the rich more heavily, in the Netherlands the formation of a new cabinet is underway; This is the perfect time to change the tax system. When taxing assets more heavily, the dividing line roughly runs between VVD and CDA on the one hand and D66, GroenLinks and the PvdA on the other, according to an analysis by asset manager ABN Amro MeesPierson. This makes the choice for a formation on the left or on the right even more succinct.

“Millionaires already pay enough tax in the Netherlands,” said outgoing Prime Minister Mark Rutte of the VVD entrepreneurial party in January last year, after another call to tax the rich more heavily. Skeptics may see this as confirmation that little will change under a new Rutte cabinet. The optimists can point to the agile nature of the outgoing prime minister, who very much wants a fourth cabinet.

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