Expert Group opinions on personnel loans and staff bonds in Box 3

The Tax and Customs Administration recently published an Expert Group opinion on personnel loans with an interest benefit and Box 3. The tax authorities also recently published an Expert Group opinion on staff bonds and Box 3. 

Personnel loans

In the example given an employee has obtained a loan from his employer. The loan is declared in Box 3 and thus reduces the employee’s capital yield tax base in Box 3. The interest that the employee pays to the employer is lower than the market rate in force at the time the agreement was entered into. The benefit of the lower interest rate is taxed as salary from employment in Box 1. 

The question then arises of how this personnel loan in Box 3 should be taken into account when determining the actual return in Box 3. This becomes important if the employee does not wish to be taxed in Box 3 under the flat-rate system but on the basis of the actual return (the "rebuttal rule"). The tax authorities’ response is that when calculating the actual return for Box 3, both the interest paid and the interest benefit (the amount deemed as salary) can be included as a negative regular gain (benefit). It is laid down by law that with non-commercial agreements 'regular gains' are calculated as if the agreement had been concluded under commercial conditions. In this case the lower interest rate on the personnel loan would therefore have to be adjusted to a commercial rate. 

Example (taken from Expert Group opinion)

A taxpayer borrows a sum of €25,000 from his employer at a non-commercial interest rate of 2%, i.e. €500 p.a. Assuming in this case that the market-based interest rate is 8% , or €2,000 p.a. The interest benefit on the staff loan, amounting to €1,500 (€2,000 less €500), forms part of the salary from employment and is therefore taxable income from work and home. To calculate the actual return in Box 3, the taxpayer must adjust the interest paid to an interest rate that would have been agreed upon with independent parties in the commercial market. The taxpayer thus declares 8% of €25,000, i.e. €2,000, as the negative regular gain (or benefit).

Staff bonds

Another Expert Group opinion concerns staff bonds. A staff bond is a bond that companies offer to their personnel under certain conditions. Personnel bonds are not tradeable and, as a rule, can only be redeemed by the employer. In the example given the taxpayer has bought bonds issued by the employer. In the case presented the interest on the bonds is higher than the market rate at the time when the bonds were purchased. The taxpayer therefore enjoys an interest benefit. The interest benefit will have to be included in the taxable income as salary from employment. This bond also forms part of the capital yield tax base in the taxpayer’s Box 3.

This raises the question of how such a personnel bond should be declared in Box 3 in order to calculate the actual return (‘rebuttal rule’). The Tax and Customs Administration's answer to this is that only that portion of the interest which is not included in the salary constitutes the actual return in Box 3.

Based on the ranking in income tax, a benefit that has already been taxed under law, will not be taxed again under another later rule. Because the interest benefit has already been added to the taxable income (Box 1), this portion will not be taxed again in Box 3. Only the portion of the interest received that was not added to the salary is taken into account as a regular gain when calculating the actual return in Box 3.