The Dutch government thought they had found a clever way to plug budget holes: tax people on profits they hadn’t actually made yet. When they announced a 36% levy on unrealized capital gains (paper profits from assets that haven’t been sold) set to kick in January 2028, the reaction wasn’t just negative, it was volcanic. Within weeks, Tax Minister Eugène Heijnen was backpedaling furiously, promising to “rethink” the draft law after investors threatened a mass exodus and constitutional lawyers sharpened their knives.
For anyone watching from France, this isn’t just another Northern European fiscal curiosity. It’s a flashing warning sign about the limits of wealth taxation and a real-time lesson in what happens when tax policy collides with financial reality.
What the Dutch Actually Proposed
The Netherlands has long taxed wealth through its “box 3” system, but until now it used a fictional assumed return rate. After their Supreme Court ruled this unconstitutional in 2021, Dutch lawmakers needed a new approach. Their solution? Track actual returns, including the change in value of stocks, bonds, and crypto-assets (crypto-assets) each year, and tax that total at 36%.
The kicker: you could owe tax even if you never sold anything. Your Tesla shares jump 40% on paper? That’s a tax event. Your Bitcoin portfolio doubles during a bull run? Taxable, even if you HODL. The system offered a paltry €1,800 exemption, a drop in the bucket when you consider the average Dutch annual income hovers around €48,000.
Real estate got a convenient exemption, which critics quickly noted was politically motivated, the asset class where politicians and their donors tend to hold most of their wealth.
The Liquidity Death Trap
The most brutal flaw in the plan was immediate and obvious: liquidity. You can’t pay a 36% tax on gains you haven’t realized because you don’t have the cash. This forces investors into a corner, either sell assets at potentially terrible times just to cover the tax bill, or borrow money to pay the government for profits that might evaporate tomorrow.
Many investors in the Netherlands made their position crystal clear: they’d relocate their capital to friendlier jurisdictions rather than participate in what they saw as fiscal confiscation. The threat wasn’t theoretical. When you’re taxing paper gains on volatile assets that can swing 50% in six months, you’re not generating reliable revenue, you’re generating reliable capital flight.
Constitutional Roadblocks and French Parallels
French observers immediately spotted the constitutional problems. The Conseil Constitutionnel (Constitutional Council) has already drawn lines in the sand. Article 13 of the Déclaration des Droits de l’Homme et du Citoyen (Declaration of the Rights of Man and of the Citizen) prohibits taxing income that hasn’t been received if it would force someone to sell their property to pay the tax.
As one legal expert pointed out in discussions about the Dutch plan, such a measure would likely be unconstitutional in France if framed as an impôt sur le revenu (income tax). However, there’s a loophole: this prohibition doesn’t necessarily apply to impôts sur le capital (capital taxes). The distinction matters enormously.
The old Impôt de Solidarité sur la Fortune (ISF, wealth tax) that France scrapped in 2018 was conceptually similar, it taxed the value of assets you held, not income you earned. While the Conseil Constitutionnel approved the ISF at the time, it also made clear that forcing sales to pay tax crosses a red line. The Dutch proposal, with its 36% rate, looked confiscatoire (confiscatory) by any measure.
The Crypto Factor
The Dutch plan specifically targeted crypto-assets, which made the backlash even more intense. Crypto investors are already hyper-sensitive to government overreach and have the technical means to move assets across borders with a few clicks. When your tax policy can be circumvented by simply relocating your digital wallet to a jurisdiction with more sensible rules, you’ve lost before you’ve begun.
The controversy highlights a growing tension across Europe: as crypto-assets become mainstream, governments salivate at the potential tax revenue while struggling to create frameworks that don’t crush innovation or drive wealth offshore. The Dutch experiment showed that heavy-handed approaches backfire spectacularly.
Could This Happen in France?
This is the question keeping French investors up at night. The answer is complicated. France already has mechanisms that flirt with taxing unrealized gains:
- Exit Tax: When you leave France, you’re taxed on unrealized gains of certain assets as if you sold them. It’s a one-time event, not an annual drain.
- IFI: The current Impôt sur la Fortune Immobilière (real estate wealth tax) taxes property value annually, but at much lower rates and with substantial exemptions.
The political appetite for broader wealth taxes remains strong in France, especially given the persistent narrative that the rich don’t pay their fair share. That 13,335 millionaires paid zero income tax in 2024 according to official Bercy (Ministry of Economy and Finance) figures certainly fuels this sentiment how French millionaires legally avoid income tax through loopholes.
However, French fiscal culture has historically respected the principle of réalisation (realization), taxing gains only when they’re actually cashed out. The Dutch debacle will make French policymakers think twice about abandoning this principle. The risk of capital flight is real, especially when neighboring Switzerland maintains relatively low wealth taxes and high banking secrecy.
The PEA and French Investment Culture
France’s investment landscape is built around tax-advantaged wrappers like the Plan d’Épargne en Actions (PEA, stock savings plan), which already faces its own regulatory battles. The Dutch proposal would have made such accounts nearly impossible to administer, as annual valuation of all holdings for tax purposes would destroy their simplicity and appeal.
Recent French struggles to balance tax policy with investor rights in PEA accounts show how sensitive these structures are to regulatory overreach France’s struggle to balance tax policy and investor rights in PEA accounts. Layering an annual unrealized gains tax on top would likely trigger a revolt among the millions of French retail investors who’ve built their retirement strategy around these accounts.
Lessons for Your Portfolio
1. Diversification isn’t just about assets, it’s about jurisdictions. If you’re heavily invested in a single country’s tax regime, you’re exposed to political risk. The Dutch case shows how quickly tax rules can shift from stable to confiscatory.
2. Tax wrappers matter more than ever. The comparison between different investment vehicles, like assurance-vie (life insurance) versus CTO (securities account), becomes even more critical when facing aggressive wealth taxes tax efficiency of investment wrappers like assurance-vie versus CTO. Assurance-vie contracts often offer creditor protection and favorable treatment that could shield against future wealth tax experiments.
3. Liquidity planning is essential. Any tax system that might require you to pay based on paper wealth demands you maintain sufficient liquid reserves, or have access to credit lines, to avoid forced asset sales.
4. Watch the constitutional debates. French legal scholars are already dissecting the Dutch case. If similar proposals emerge in France, the Conseil Constitutionnel will be the first line of defense. Understanding your constitutional protections is as important as understanding your tax code.
The Bigger Picture
The Dutch retreat doesn’t mean the idea of taxing unrealized gains is dead, just that 36% was politically suicidal. More modest proposals may resurface, possibly targeting only ultra-high net worth individuals above €100 million, as some academics suggest. Switzerland already has wealth taxes, Norway includes unrealized gains in its net wealth calculations, and Denmark has exit taxes.
The fundamental question remains: what’s the fair way to tax wealth in an era where asset prices, especially financial and crypto assets, have decoupled from traditional income? The Dutch experiment showed that moving too far, too fast triggers capital flight and constitutional challenges.
For France, the lesson is clear: any wealth tax reform must balance revenue needs with economic reality, respect constitutional limits, and maintain the principle that you shouldn’t pay tax on money you can’t spend. The Dutch learned this the hard way. France would be wise to study their homework.