Aruba: Real Property Tax (Grondbelasting) – Prejudicial Questions to the Supreme Court
April 18, 2023
The Court in First Instance in Aruba has used its right to request prejudicial decisions from the Supreme Court in the Netherlands regarding the increases in the tax rates in the Real Property Tax in 2019 from 0.4% to 0.6%.
In 2019 the Government of Aruba amended the rates for the Real Property Tax from a fixed rate of 0.4% of the value of the property to a progressive rate between 0.2% and 0.6% for individual owners resident of Aruba with a 0% rate when the value of the property is below Afl. 120.000 and a 0.6% rate for non-resident or non-individual owners. Also, the general tax-free amount of Afl. 60.000 per taxpayer was abolished.
System of the Real Property Tax
The National Ordinance Real Property Tax states that the assessments are imposed for a period of 5 years (in this case the period 2017 up to and including 2021) and cannot be changed, with the exception of changes as a result of objection or appeal against the assessments and certain changes to the property over the course of this period, such as construction, renovation or demolition of the property.
It is clear that the National Ordinance Real Property Tax does not allow either the tax inspector to make changes in the value of the property or, the taxpayer to object to the value of the property during this 5-year period. The question arose, whether the National Ordinance Real Property Tax allows for changes in other parts of the assessment, including the tax rates and the tax-free amount. More importantly, whether the changes in the assessment would lead to this new assessment being considered a “second assessment” and furthermore whether if this is a second assessment, whether this assessment constitutes an additional assessment.
The Attorney-General of the Supreme Court advised that the changes in the tax rate would lead to a “second assessment” since neither the text of the National Ordinance nor any Explanatory Notes on this National Ordinance could lead to any other conclusion that the initial assessments for all years in the 5-year period are imposed in full in the first year of any 5-year period (in this case 2017). The fact that the actual physical assessment has been prepared at a later date is not important since, according to the Attorney-General, the wording of the legislation of the Real Property Tax does not adhere to the normal method of imposing assessments but the legislator has specifically chosen to deviate from this method.
Contrary to the conclusion of the Attorney-General, the Supreme Court has ruled in two cases that it is clear that the physical assessment has not been prepared before 2019. Despite the wording in the National Ordinance Real Property Tax, assessment can only be deemed to have been imposed once the tax inspector has dated the assessment and prepared it for distribution. The Supreme Court is of the opinion that the described method of imposing assessments for a period of 5 years is meant to ensure that taxpayers have certainty about the value of the property, but cannot lead to any legal protection against the legitimate expectation that the rates would be unchanged in the 5-year period. Hence the method allows for the government to change the tax rates during this period. In its decision, the Supreme Court takes into account that the lower rates and thus any tax savings for other taxpayers would also only be applicable at the end of the 5-year period and the Supreme Court states it is clear upon preparing the original legislation the legislator could not have had the intention to incur such a negative effect for a group of taxpayers.
The Supreme Court concludes that the assessments imposed are the primary assessments and thus they do not need to further answer queries regarding the conditions for imposing additional assessments. Finally, the Supreme Court concludes the changes were not to be in violation of the European Treaty regarding Human Rights.
Based on the above it can be expected that any pending objections against the Ground Tax assessments 2019, 2020, and 2021 regarding the changes in the tax rates will be rejected. HBN Law & Tax is happy to assist you with any queries regarding this process and decision.