On May 28, 2021 on the website of the Dutch Courts (De Rechtspraak) a judgment of the Court of Appeal Arnhem-Leeuwarden of May 18, 2021 in the Case: 19/00599, (ECLI:NL:GHARL:2021:4878), was published. The case regards the question which jurisdiction has the right to tax signing bonuses of professional football players which are lent out/rent out by a Belgium professional football organization (a BPFO) to a Dutch professional football organization (a DPFO).
Before discussing the case I have to admit that this case were an eye-opener for me. From time-to-time I hear/read about the new contracts top players sign with a club. The press then talks about the huge signing bonusses the players receive. The naïve football fan in me always believed that when the player signs the new contract on day X, one day later the millions were remitted to his bank account. The facts of the underlying case gave me some new insight with respect to signing bonusses.
The facts of the underlying case
The ruling in the underlying case was given in an appeal against a judgment of the lower court Gelderland from March 27, 2019 (zaak: AWB - 17 _ 2789) (ECLI:NL:RBGEL:2019:1339). In the underlying ruling the Court of Appeal mainly confirms the previous ruling of the lower court although based on a different interpretation of the facts it corrects the judgment of the lower court for as far as this relates to the question which jurisdiction (The Netherlands or Belgium) has the right to levy taxes over the one-off payment of signing fee to player 2.
The underlying case regards the question which country has the right to levy wage taxes over signing bonusses that 3 Belgian resident professional footballers receive(d) from a Belgian professional football organization (Hereafter: BPFO), which later on lends/rents them out to Dutch professional football organizations (Hereafter: DPFO). In the underlying case the Dutch tax inspector has issued an ex-officio wage tax assessment for the period Januari 1, 2010 through December 31, 2010 to the Belgian professional football organization.
On December 28, 2007 the BPFO and player 1 concluded a player’s contract. The contract covered the period from January 1, 2008 until June 30, 2012. Insofar as relevant the BPFO and player 1 have agreed the following:
- During the 2007/2008 season player 1 will receive a monthly salary of € 6.500;
- As of the 2008/2009 season player 1 will receive a monthly salary of € 12.000;
- For the second half of the 2007/2008 season player 1 will receive a gross “prime de signature” (signing bonus) of € 75.000 to be paid in two parts of € 37.500 each;
- As of the season 2008/2009 player 1 will receive € 252.684 of signing bonusses per season. These signing bonusses will be paid in 4 tranches of € 63.171 before taxes. Payment of the tranches will be in the months of August, November, February and May. In the player’s contract it is specifically determined that amounts will not be due after the player’s contract is ended for whatever reason.
On August 9, 2010 the player’s contract between BPFO and player 1 are amended. Parties have agreed that for the period from August 10, 2010 through June 30, 2010 the signing bonus is lowered to € 192.684 before taxes which is to be paid in 4 equal parts of € 48.171 before taxes. In the amended player’s contract an explicit referral is made to the fact that during the aforementioned period player 1 will be lent out to a DPFO (in this case DPFO A).
During the period August 10, 2010 through June 30, 2010 player 1 was a resident of Belgium.
On August 21, 2008 the BPFO and player 2 concluded a player’s contract. The contract covered the period from August 21, 2008 until June 30, 2012. Insofar as relevant the BPFO and player 2 have agreed the following:
- Player 2 receives a monthly salary of € 40.000;
- For each season player 2 will receive a gross signing bonus of € 388.000 to be paid in 4 tranches of € 97.000 before taxes each. The tranches have to be paid in September, December, March and June of each year;
- BPFO guarantees player 2 an annual income of € 750.000 after taxes.
During the 2009/2010 season player 2 was lent out to a German Professional Soccer Organization. As of July 21, 2010 player 2 was on a trail training internship at DPFO B. After a practice match in 2010 in which player 2 scored, the internship was extended until July 31, 2010. On July 30, 2010 BPFO and player 2 concluded a new player’s contract. This new contract replaced the player’s contract that was concluded on August 21, 2008 and covers the period from July 1, 2010 through June 30, 2012. In the new player’s contract, player 2 and the BPFO agreed on the same salary and signing bonusses as were agreed upon in the 2008 player’s contract. In addition in the the new player’s contract player 2 has been awarded a net amount of € 350,000. This amount has been designated “prime de signature complémentaire et unique” payable on July 1, 2010.
On August 2, 2010, the BPFO and player2 signed an addendum to the player’s contract of July 30, 2010. The addendum refers to the posting of player 2 to B for the 2010/2011 season. In as far as relevant in this addendum the BPFO and player 2 have further agreed that:
- For the 2010/2011 season the monthly salary will be € 30.000;
- For the 2010/2011 season the signing bonus amounts to € 288.000 before taxes to be paid in 4 tranches of € 72.000 each. The tranches have to be paid in September 2010, December 201, March 2011 and June 2011;
- BPFO guarantees player 2 an annual income of € 687.500 after taxes for the 2010/2011 season.
- For the season 2011/201 both the salary and the signing bonus will be unchanged.
On August 3, 2010, BPFO and B concluded an contract in which parties agree that for the period from August 1, 2010 through June 30, 2011 player 2 will be made available to B. During this period from August 1, 2010 through June 30, 2011 player 2 was a resident of Belgium.
On May 31, 2008 the BPFO and player 3 concluded a player’s contract. Insofar as relevant the BPFO and player 3 have agreed the following:
- Player 3 receives a monthly salary of € 30.250;
- For each season player 3 will receive a signing bonus of € 378.000 to be paid in 4 tranches of € 94.500 before taxes each. The tranches have to be paid in the months of August, November, February and May of each year;
During the period from August 1, 2009 through June 30, 2010 player 3 was lent out to DPFO (C). During this period player 3 was a resident of Belgium.
In the months of March and May 2010 BPFO remitted to player 3 the signing bonusses of € 94.500 that player 3 was entitled to for the months of February and May 2010. Over the March payment the BPFO applied the so-called 30% facility.
The main appeal was filed by the Dutch tax authorities against the judgement of the lower court that judged that Belgium had the right to levy tax over the one-off payment of signing fee to player 2.
Furthermore a cross-appeal was filed by the BPFO. The BPFO disputes the judgment of the lower court that the Netherlands have the right to levy tax over the periodically paid signing fees that were paid to the players. In this respect the BPFO primarily is of the opinion that under Dutch national law the payments of signing fees do not form part of the salary. In the alternative the BPFO argues that Article 15 of the Dutch-Belgian Tax Treaty applies and based on that Article the right to levy taxes over these signing fees has been allocated exclusively to Belgium. More in the alternative the BPFO is of the opinion that - if Article 17 of the Dutch-Belgian Tax Treaty applies - the Netherlands does not have a right to levy taxes over the signing bonusses.
Allocation of the signing bonusses
To the opinion of the Court, Article 17 of the Dutch-Belgian Tax Treaty applies (Article 17 of the Dutch-Belgian Tax treaty is very similar to Article 17 of the OECD Model Treaty (Artistes and sportsmen)). According to the Court the underlying case concerns personal activities that the players (player 1, 2 and 3) perform in the Netherlands in their capacity of sportsmen. The Court is furthermore of the opinion that the text of Article 17 doesn’t contain any indication that this provision would only apply to short-term events. The BPFO has pointed out that the explanations of the provisions of Article 17 often referrals are made to short-term events. According to the Court these however are only examples. In the opinion of the Court, those examples do not exclude the applicability of these provisions to more long-term activities that a sportsperson exercises.
The BPFO points out that by signing the player’s contract, the players have not (yet) agreed to being lent out to a third party. To this end, further contracts must be concluded between the BPFO, the player and the other club. In addition, a Belgian government official must give permission. According to the BPFO, the signing bonusses arise from the Belgian employment relationship that has no connection with the Netherlands whatsoever. Therefore according to the BPFO, the signing bonusses cannot constitute wages for performing, or having performed, work in the Netherlands. Therefore these signing bonusses do not form part of the taxable income from work and home in the Netherlands (Article 7.2 of the Dutch Income Tax Act 2001). The BPFO is therefore of the opinion that it is not liable for withholding wage taxes over these signing bonusses. (Article 6, second paragraph, opening words and part b, of the Dutch Wages and Salaries Tax Act 1964)
The Court considers it plausible that the agreed signing bonusses are a reward for the work that the player is expected to perform during the contract period. By means of additional agreements it has been arranged that the player will perform these activities in the Netherlands, and the permission that is necessary for that under Belgian law has been obtained. It is regards the activities agreed upon in the players' contract, for which, among other things, the signing bonusses have been agreed upon. According to the Court it is irrelevant whether the signing bonusses are paid at once in full or in installments. The Court is furthermore of the opinion that it is also irrelevant whether it has been expressly agreed that the signing bonusses are not due upon termination of the contract. The Court finds it plausible that the total of services that a party owes under the contract during the term thereof, is related to the agreed considerations of the other party. The contract does not regulate the conditions under which the contract can be prematurely terminated. According to the Court it is therefore plausible that an premature termination contract, including the associated conditions, can only be arranged by further agreement. The conclusion of the Court is therefore that the signing bonusses are a reward for the work that the players perform during the contract period. Now that the supplementary agreements provide that these activities are (or will be) performed in the Netherlands, according to the Court they are part the taxable income from work and home (Article 7.2 of the Dutch Income Tax Act 2001) and of the income from personal activities as such exercised in the Netherlands in the capacity of sportsperson (Article 17 of the Dutch-Belgian Convention).
At the hearing at the Court the BPFO has declared that during negotiations regarding a player’s contract, the various components over which the total amount is divided are mutually interchangeable and that the BPFO is only interested in the total package and that the relationships between the various components do not matter much to her and that she generally leaves it to the players to decide how the different parts of the remuneration are to be divided. In this the Court finds support for its opinion that the signing bonuses, just as the monthly salary, are intended to constitute a reward for the activities the players perform during the contract period.
The BPFO also states that at the time of the agreeing on the signing bonuses it was not yet established that the players would perform their work outside their country of residence, Belgium, or more specifically, in the Netherlands. In the opinion of the Court, pursuant to Article 13a of the Dutch wage tax Act the tax treatment of a salary payment must be assessed at the time that this payment is received. In doing so, all facts and circumstances known at that time must be taken into account. According to the Court it is therefore not important whether ate the time of agreeing on the signing bonusses it was already determined where the activities would actually be performed.
Payment of the one-off signing bonus to player 2
The BPFO disputes that the one-off signing bonus agreed upon by agreement of July 30, 2010 was paid to player 2. At the hearing of the Court, the BPFO acknowledged that the signing fee was due and collectable on July 30, 2010. According to the Court the signing bonus was therewith enjoyed (Article 13a of the Dutch wage tax Act). According to the Court it is therefore no longer important for the underlying procedure whether or not the signing fee has actually been paid is.
As concluded above player 2 received the one-off signing fee on July 30, 2010. Unlike the lower court, the Court of Appeal considers it plausible, partly in view of the extension of the training internship, that at that time it was almost certain that player 2 would be lent out to DPFO B for the rest of the 2010/2011 season. Although the one-off signing bonus of € 350,000 was agreed upon when supplementing the original agreement that would run for two more seasons, the Court considers it plausible that it was the intention of both parties that signing bonus only relates to the 2010/2011 season, since the previous season when player 2 had been lent to a German professional football organization, he was awarded an equal amount of signing bonus. It has not been stated or shown that a partial repayment of this signing bonus was agreed upon dissolution of the employment contract at the end of that season.
In the 2010/2011 season, player 2 played for eleven months (August 2010 to June 2011) DPFO B. As the Court has considered above, it is plausible that the signing bonus for these eleven months is income earned by player 2 for personal activities he performed in The Netherlands. As the Inspector has stated, and which has not been disputed, € 3,500 of that signing fee can be attributed to a match not played in the Netherlands. According to the Court of Appeal The Netherlands therefore has the right to tax (11/12 * € 350,000) – € 3,500, or € 317,333. The entire signing fee was due and payable on July 30, 2010. The payroll tax owed on this had to be withheld at that time. This tax is therefore rightly included in an additional assessment for a period in which July 30, 2010 fell. It is not important that the additional tax assessment period does not include the entire wage period to which the payment relates.
For further information click here to be forwarded to the text of the judgment as published on the website of De Rechtspraak, which will open in a new window. NB the judgment is only available in the Dutch language.
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