Shall I compare thee to an onion

When I was in university we were taught the intricacies of the 1964 Dutch Income Tax. This tax was preceded by the 1941 Income Tax which was introduced during the second world war by the occupying Germans. It remains somewhat stupefying that it took the Dutch government so long to abolish this income tax. The 1941 Income tax was preceded by the 1914 Income Tax on which the current Curacao Income is based.

It is probably better to say that originally our income was a legal transplant of the 1914 Dutch Income Tax. Legal transplants are very much a field of study of my Alma Mater (State University Groningen) but until a few years I had no idea what a legal transplant was. In 2018 however I published an article in our Dutch Caribbean Law Review on the introduction of the Antilles profit tax which is a legal transplant from Dutch East Indies corporate income tax. I am a bit more in the loop now.

With the change of the century the Dutch introduced a complete new income tax which differs quite sttrongly from all the previous income tax legislation. We shall compare both hereunder.

One of the things we were taught is that you could  compare the income tax to an onion (hence the title of this blog).  The idea is to peel of layers of taxable types of income in an obligatory order. In the peeling of you of course see the comparison with an onion.

In the Curacao income tax this order is:

1 income from real estate;

2 income from capital;

3 income from labour and entrepreneurial income;

4 periodical income.

Basically all the income is than put together and taxed against a progressive rate. (The higher the income the higher the tax bracket you will end up in). As all the income is basically taxes against the same rate this is called a synthetic income tax (versus an analytical income tax).  But it would of course not be a real law if there were no exceptions to this tax being synthetic. Income from a substantial interest in a company falls under the scope of income from capital but is not being taxed a progressive rate. Same goes for interest income and e.g. compensation for income one missed out on like when you receive your pension income in one installment and such. So the Curacao is a synthetic income tax with analytical elements.

With the current Dutch income tax it is the other way around. It is a analytical income tax with synthetic elements. The Dutch in 2001 introduced an income tax with what they call boxes.

Box 1 contains your income from labgour and such and also the deemed income of owning your own home. Box 2 contains your income from substantial interest and box 3 your income from capital. Each box has its own tax rate. Box 1 has a progressive tax rate; box 2 a fixed rate and box 3 taxes your capital for a deemed income.

The onion is still in play here as the Dutch income tax also requires to go from box 1 to box 3 in that order to find if you have taxable income and how you will be taxed. As certain types of income are also thrown together there is a synthetic element to this income tax and therefor this is an analytical income tax with synthetic elements.