On August 12, 2022 an interesting opinion of the Advocate General to the Dutch Supreme Court was published on the website of the Dutch courts. The opinion regards the question which jurisdiction is entitled to levy taxes over bridging payments that are paid to a former football player after he has ended his active sootball career and has moved out of the Netherlands. More paricularly the Advocate General elaborates on the question whether the allocation of these levying rights is arranged by Article 17 (Entertainers), or whether it is arranged by Article 18 (Pensions and Annuities), as included in the Dutch-Australian DTA.

The taxpayer in the underlying case is responsible for the implementation of the Bridging Arrangement as created for professional football players in the Netherlands. This Bridging Arrangement is laid down in the KNVB's Reglement Betaald Voetbal (the Royal Dutch Football Association Professional Football Regulations), the standard player contract and the Collective Labor Agreement Professional Football. As a standard, the scheme must be included in every player's contract, and it provides for a periodic payment from the end of the football career. A Bridging Arrangement arranges that a soccer player receives regular payments from the moment that he ends his active career until he reaches the retirement age.

In connection with the entitlement to bridging payments, the football club as employer owes a fund premium. This fund premium the football club deducts from the gross salary of the professional football players. The football club has to pay these premiums withheld to the Main Fund. The Main Fund is managed by the taxpayer.

The underlying case regards the year 2018. On January 1, 2018 the former player received a bridging payment. At the moment he received a bridging payment the former player was a resident of Australia.

On March 18, 2015 in a vaststellingsovereenkomst (an ATR) (Hereafter: the ATR) as concluded between the taxpayer and the Dutch tax authorities came to an agreement on which country is entitled to levy taxes over bridging payments in case a former player moved abroad. In the ATR it is arranged that the taxpayer will not have to withhold wage taxes if a former football player is a resident of Australia at the moment that he receives a bridging payment.

Following the judgment of the Dutch Supreme Court of May 19, 2017 (BNB 2017/179, ECLI:NL:HR:2017:913) the Tax Inspector changed his position. Hence, he now is of the opinion that in the underlying case the taxpayer was obliged to withhold wage tax over the bridging payments made to former soccer players that moved to Australia. (NB the case of May 19, 2017 regarded the question whether Article 16 or Article 19 of the Dutch-US DTA applies to the payment of an annuity, which is obtained as a result of dismissal from an employment that was performed in the US).

In the underlying case the taxpayer and the tax authorities are disputing whether or not a bridging payment made to a former professional football player is to be considered as to constitute an annuity as meant in Article 18, Paragraph 2 of the Dutch-Australian DTA.

Legal context

Article 17 (Entertainers) of the Dutch-Australian DTA

Article 17 of the Agreement between the Kingdom of the Netherlands and Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income as concluded on March 17, 1976 reads as follows:

1. Notwithstanding the provisions of Articles 14 and 15, income derived by entertainers (such as theatrical, motion picture, radio or television artistes, and musicians and athletes) from their personal activities as such may be taxed in the State in which these activities are exercised.
2. Notwithstanding anything contained in Articles 5 and 7, where the services of an entertainer mentioned in paragraph (1) are provided in one of the States by an enterprise of the other State, the profits derived by that enterprise from providing those services may be taxed in the first-mentioned State if the entertainer performing the services of a relative of such person, controls, directly or indirectly, that enterprise.
3. The term “relative” in this Article means a brother, sister, spouse, ancestor or descendant.

Article 18 (Pensions and Annuities) of the Dutch-Australian DTA

Article 18 of the Agreement between the Kingdom of the Netherlands and Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income as concluded on March 17, 1976 reads as follows:

1. Pensions, including pensions provided under the provisions of a public social security system, but not including pensions to which Article 19 applies, paid to a resident of one of the States, and annuities so paid, shall be taxable only in that State.
2. The term “annuity” means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time under an obligation to make the payments in return for adequate and full consideration in money or money's worth.

The procedure in front of the District Court and the Court of Appeal

The District Court of Gelderland

The District Court rejects the Inspector's position that from BNB 2017/179 it follows that the granting of a right to periodic payments by an employer to an employee can never qualify as an annuity. In the opinion of the District Court, the bridging payment as made in the underlying case does qualify as an annuity within the meaning of Article 18, Paragraph 2 of the DTA.

The Court of Appeal of Arnhem-Leeuwarden

Nor does the Court of Appeal infer from BNB 2017/179 that the mere circumstance that a right to benefits arises in the context of an employment relationship precludes the classification as an annuity. For the assessment of the question whether payments qualify as an annuity as referred to in the Dutch-Australian DTA, the Court of Appeal considers it important for whose account the premiums owed came/come. To the opinion of the Court, in the underlying case the entire premium qualifies as an employee's contribution, as a result of which the Bridging Arrangement qualifies as an annuity under the Dutch-Australian DTA. As a result, according to the Court of Appeal, no Dutch wage tax is due over the bridging payments.

The Secretary of State for Finances appealed against the judgment from the Court of Appeal.

From the considerations of the Advocate General

In order to qualify as an annuity under the definition of the DTA, there must be a consideration in money or money's worth. It occurs to the Advocate General that labor is also a sacrifice that can be expressed in monetary value. However, it follows from the disputed consideration of BNB 2017/179 that if a right to a benefit is acquired solely in the context of the termination of an employment relationship, it apparently cannot be said that this is a sufficient and full consideration in money or monetary value within the meaning of the DTA.

With his primary plea, the Secretary of State argues, with reference to BNB 2017/179, that the annuity provision of the DTA does not apply, because the bridging payment arises in the context of an employment relationship. The Advocate General rejects this position and follows the Court of Appeal's consideration. According to the Advocate General, therefore the touchstone used by the Supreme Court is whether there is 'sufficient and full consideration in money or monetary value' and not whether there is an employment relationship.

The question then remains whether the bridging payment is met with sufficient and full consideration in money or monetary value. The Secretary of State argues that there is no consideration in money, because according to him there is an employer's contribution instead of an employee's contribution. In the opinion of the Advocate General, the discussion about the question of whether there is an employer's or an employee's contribution is not relevant in this. According to the Advocate General the DTA concerns a civil law question, namely whether a performance has been rendered in return for the payment, without it being relevant who rendered that performance. In the text of the annuity definition of the DTA, it only matters whether the premium deposit provides adequate coverage for entitlement to and payments from the Bridging Arrangement. Since the latter is the case, according to the Advocate General, the Bridging Arrangement therefore meets the definition of an annuity as laid down in the DTA.

In the opinion of the Advocate General, therefore, justifiably no Dutch wage tax was withheld over the bridging payment made.

The Advocate General proposes that the Dutch Supreme Court will deny the appeal from the Secretary of State.

The full text of the opinion of the Advocate General can be found here. (Only available in the Dutch language)

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