End of the Box 3 “disappearing trick” via the 30% rule

There is a remarkable development in expat practice: the tax authorities are drawing a firm line between the practice of allocating assets to the partner with the 30% ruling, in order to avoid tax in Box 3. This strategy has been used for years. But according to a recent Knowledge Group position, this should never have really been allowed.

‍How did this construction work in practice?

Those who come to the Netherlands as an employee with scarce expertise can make use of the 30% ruling under certain conditions. Until the end of 2024, the status of partial foreign taxpayer could thus be chosen. This status meant that an expat in Box 2 and Box 3 only owed tax on assets located in the Netherlands, and not on foreign bank accounts or investments, for example.

That's where fiscal partner-sharing comes in. Indeed, article 2.17 Act IB 2001 states that tax partners may freely distribute their common income and assets in Box 3. The article does not talk about the origin of that asset, nor does it make an exception for cases with a 30% ruling. In many cases, the reasoning was therefore as follows: partner A with the 30% ruling does not have a taxable basis in Box 3, partner B does. If the assets are subsequently fully attributed to partner A in the declaration, no levy will arise. Simple, legal and used by practice for years.

Why is the tax authorities now resisting this?

According to the Tax Administration Knowledge Group, the legal order is misinterpreted. She states that it is first necessary to determine individually how much taxable capital each partner has based on their own tax position. Only then can these amounts be added together into one common basis for savings and investments. Partners can distribute that amount among themselves. That distribution then only changes who pays the tax, not whether taxes are due.

An example shows that: partner A (expat) has €0 taxable capital by law, partner B has €500,000. The joint basis is then €500,000. Even if everything is attributed to A, that taxable amount remains. The A exemption cannot be applied again to assets that belong to B.

The tax authorities substantiate this with a teleological explanation: the legislator's intention was never to get the partner's assets tax-free, only to keep the expat's own foreign assets out of taxation.

Is that point of view so logical?

However, something is wrong here. Because the law does not explicitly say that article 2.17 Act IB 2001 would not apply to partial foreign tax liability. The free allocation, on the other hand, applies unreservedly. To date, the tax authorities have not corrected this strategy for years either. In some cases, even accepted, for example through agreements or tacit review of returns.

In doing so, the current certainty of this position is in conflict with the principle of legal certainty. If taxpayers apply a certain distribution based on the law and professional advice, it is at least questionable to say afterwards that this was “never” allowed. Especially now that the tax authorities invoke the purpose of the law (teleology), even though the letter of the law left space.

What does this mean for the past?

This is where the problem is the most. Because the Knowledge Group position suggests that the construction was never allowed. But does that also mean that the tax authorities will actively look back? Formally, this could be done through recovery (art. 16 AWR), provided that there is a 'new fact' or bad faith. But if returns are submitted completely and transparently, the question is whether there is a new fact.

The tax authorities have not yet communicated a clear policy about this. It can therefore range from doing nothing to sending letters of questions en masse. From a practical point of view, large-scale enforcement is difficult, but a targeted approach (for example with high wealth, expats or border situations) is not inconceivable.

And what if this is what you are dealing with?

Whoever has applied the distribution would be wise not to panic, but to be prepared. Collect documentation, old returns, any correspondence with the tax authorities and assess whether there has been a defensible position. In many cases, that is there. Transparency, timely response and a well-founded explanation can make the difference between a smooth process and an annoying process.

This discussion nicely shows how tax legislation, practice and policy sometimes run on different tracks. With this position, the tax authorities offer clarity for the future, but at the same time, history is being rewritten. And that raises questions about reliability, legal certainty and the boundary between interpretation and policy making. As far as we are concerned, this debate is far from over.