The Netherlands didn’t set out to tax unrealized gains. It arrived there because its highest court invalidated a more modest policy of taxing “assumed” investment returns. Lawmakers were left with a multibillion-euro revenue hole and few legally viable ways to fill it.

Their solution was to tax the annual change in value of stocks, bonds, and crypto at 36% regardless of whether those assets are sold. It’s essentially a limited wealth tax, set to take effect in 2028.
For years, the Netherlands taxed savings and investment income under a simple deemed return calculation. The government applied a notional rate of return to financial assets held and taxed that figure. When interest rates were positive, the fictitious return rate was palatable. When interest rates collapsed, it wasn’t. Savers were being taxed on income that only existed on paper.

In 2021, the Dutch Supreme Court ruled the policy violated property rights protections under the European Convention on Human Rights. Taxing assumed income detached from reality wasn’t just bad policy; it was unlawful.

That court decision eliminated the politically expedient middle ground. Lawmakers could no longer hide behind rough estimates and back-of-the-envelope math. They had to either move to a capital gains system or tax annual returns as they accrued.

They chose the latter. Notwithstanding initial motivations or how it got there, the Netherlands is about to run a real-world test of mark-to-market taxation at scale.

In the US, debates over wealth taxes and taxing unrealized gains tend to unfold in the abstract. The Netherlands’ tax reform offers both a cautionary tale and a live experiment. It illustrates how quickly court intervention can winnow the menu of policy options. And it will test whether liquidity constraints force asset sales, as detractors contend, or the system hums along and tax revenue surges upward.

—Andrew Leahey

The Netherlands’ recent tax reform shows that court intervention can quickly winnow the menu of policy options.

Photographer: Sjoerd van der Wal/Getty Images

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Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

Massachusetts’ draft software taxation rules would create a burdensome apportionment process for multistate buyers that doesn’t account for real-world complexity, Andrew Leahey says in his latest Technically Speaking column.

The state should instead “allow business purchasers of standardized software to elect a fixed percentage for in-state use for tax purposes,” Andrew writes. The revenue department also could implement the safe harbor on a transitional basis while evaluating how the new apportionment system performs, he adds. Read More