On January 7, 2025, the Court of Appeal of Amsterdam ruled that there is no fictitious disposal when an expat with a significant interest emigrates and has chosen to be treated as a partially foreign taxpayer for box 2 taxation.
Since no fictitious disposal occurs in such cases, the Dutch Tax Authority cannot impose a preserving assessment on the value growth during the period the individual was a resident in the Netherlands. If this expat then moves to a country with which the Netherlands has a tax treaty, this may lead to the Netherlands having no right to tax when the shares are actually disposed of.
Partial foreign tax liability
Until January 1, 2025, expats who used the 30% ruling could choose to be treated as a foreign taxpayer for box 2 and box 3 taxation. This meant they only paid taxes on Dutch income and not on foreign income.
Starting January 1, 2025, this scheme has been abolished, and expats will now have to declare their entire box 2 and box 3 income.
However, expats who were already under this scheme before 2024 benefit from a transitional arrangement: they can still choose partial foreign tax liability in 2025 and 2026.
Emigration and the preserving assessment
An expat with a significant interest who emigrates is typically faced with a fictitious disposal for box 2 taxation. This means that tax is imposed on the disposal profit, but the assessment is preserving. The Dutch Tax Authority grants a payment deferral, and tax is only collected when the shares are actually disposed of.
Does the disposal fiction apply to partial foreign tax liability?
In the case that the Court of Appeal ruled on, the case involved an expat who, after living in the Netherlands for ten years, returned to France on December 31, 2017. During her stay, she had continuously chosen partial foreign tax liability and acquired a significant interest in a Dutch company.
Upon her emigration, the Dutch Tax Authority imposed a preserving assessment on a taxable income of €4.6 million. The question was whether the disposal fiction was applicable to expats with partial foreign tax liability.
Following the lower court, the appellate court ruled that an expat who chooses foreign tax liability must be considered a foreign taxpayer for box 2 in all respects. Since foreign tax liability does not contain a provision that applies the disposal fiction to foreign taxpayers, the expat could not be confronted with a preserving assessment.
What does this mean for you?
For expats who lived in the Netherlands before 2024, have a significant interest, and are considering emigrating in 2025 or 2026, this ruling may provide an opportunity to avoid Dutch box 2 taxation on the value growth. It is advisable to anticipate this development in good time.
The Secretary of State for Finance has now filed an appeal in cassation with the Supreme Court.
If you have any questions about this topic, feel free to contact us.