Paying tax on money you never earned: box-3 ‘disastrous’ for start-ups

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The planned wealth tax reform could prove disastrous for Dutch startups. That says a leading group of investors.

These investors, united in the Operator Exchange collective, have therefore presented the responsible State Secretary Marnix van Rij (CDA) with an urgent letter that is in the hands of BNR. In it, they explain what consequences the reform may have for new, promising companies. ‘They are disastrous’, says Anke Huiskes, of investment fund NP-Hard Ventures and co-author of the letter.

The core of the problem is that shareholders in the new tax system have to pay tax on profits that have not yet been realised. From 2027, the State Secretary may want to levy tax on the growth of wealth. Due to this so-called ‘capital gain tax’, shareholders can then be confronted with sky-high assessments, for example after a successful investment round. This while they can only cash in on that value after an IPO or sale.

THE HAGUE - Marnix van Rij, State Secretary for Taxation and Tax Administration
THE HAGUE – Marnix van Rij, State Secretary for Taxation and Tax Administration (ANP – Hollandse Hoogte – Dijkstra bv)

According to Operator Exchange, such a tax approach has far-reaching consequences for young startups, because they often pay their employees partly in shares. ‘It will become less interesting for employees to work for a Dutch startup, and less interesting for startups to establish themselves in the Netherlands’, the investors write.

‘Only charge tax after cashing out’

A revision of the wealth tax is necessary, because in 2021 the Supreme Court found the previous system, in which notional returns were taxed, to be contrary to the law. Operator Exchange endorses the need to reform the way capital is taxed, but is more in favor of taxing shareholders only after they cash out. In a debate with the House of Representatives, State Secretary Van Rij argued against this approach and warned against a ‘lock-in’ effect. Shareholders could hold on to their interest, or put it at a distance with tax constructions.

Prince of Orange also involved in tax lobbying

The urgent letter to Van Rij was signed by forty people, including Jelle Prins (former product manager Uber), Daniel Gebler (founder and CTO at Picnic) and Hans Ober (CEO of TicketSwap). The company is not alone in their criticism of the new system. Techleap, the driver of the start-up and scale-up sector of which Prince Constantijn van Oranje has been an ambassador for many years, is also concerned about the future of box 3.

Thomas Vrolijk, head of Techleap’s Government Affairs & Strategy team, points to TestGorilla as an example. This recruitment platform raised 70 million in investments last year, which significantly increased the value of the company. ‘If employees who have bought shares then have to pay taxes while the shares are not yet tradable, they will run into liquidity problems,’ says Vrolijk.

Anke Huiskes of Operator Exchange fears for the Dutch business climate. ‘In the short term you will get angry faces, but in the long term it is even disastrous for the entire startup ecosystem in the Netherlands, which is an essential engine for innovation, economic growth and employment.’

Resistance from parliament

It remains to be seen whether the plans of the State Secretary will go ahead, because there is the necessary resistance in the House of Representatives, including within the coalition. Folkert Idsinga (VVD) is strongly opposed to the capital gains tax in general. ‘Except in the start-up sector, there are many more examples where things can go wrong in this way,’ says the Member of Parliament. He points out that small investors may see their pensions go up in smoke. ‘In general, it is better to tax when an increase in value can be converted into money,’ says Idsinga.

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