NETHERLANDS: Corporate income tax liability of Foundation which organizes the Tour of Holland (?Ronde van Nederland?)
A Netherlands Foundation organized for many years the cycle race Tour of Holland. Although the Tour is no longer organized in this form, the corporate income tax liability of the organizing Foundation is before the Courts. The goal of the Foundation was the organisation of the year Tour of Holland (?Ronde van Nederland?). Over the years the Foundation had accumulated an own equity, amounting to EUR 345.114 in 2000 and EUR 312.597 in 2003. The main income components were sponsor moneys and payments by the cities were daily races started and/or ended. In 1988 the tax inspector agreed that corporate income tax liability would not take place if the income and costs of the Foundation would be in balance and there would be no further accumulation of wealth in the Foundation above an amount of EUR 300.000 to EUR 350.000. The tax inspector did also state that corporate income tax liability could arise if the general conditions for corporate income tax liability of foundations would be fulfilled. In 1997 the tax authorities inspected the books of the Foundation regarding the years 1993 ? 1996. In the report it was stated that although the Foundation was subject to corporate income tax the Foundation would not be taxed if the equity of the Foundation would not exceed EUR 300.000. By letter of 28 March 2002 the tax inspector asked for financial information to reassess the situation. By letter of 29 July 2002 the Foundation asked the inspector to increase the permitted amount of equity from EUR 300.000 to EUR 350.000 because of the yearly increasing expenses, the extension of the Tour with additional racing days and to sustain the continuity of the Tour. The Court of First Appeal of Breda held on 27 January 2006 (decision Nr. AWB 05-817) that the Foundation was subject to corporate income tax. The Court based its decision inter alia on the following: - in the letter of 28 July 2002 the Foundation had indicated the further professionalism of its activities; - from the increasing wealth the Court concluded that the Foundation had as one of its goals the realisation of profits, the Court held that the negative results of 2001 and 2002 did not change its opinion; - the Court did not accept that the statutory destination of any liquidation result for the purposes of the cycle sport meant that the Foundation had no profit intention. COMMENT: Considering the way the tax authorities had dealt with the Foundation in the past the decision seems rather harsh. If in 1988 the tax inspector mentions as an acceptable equity EUR 300.000 then surely some increase needs to be acceptable. This is also indicated by the 2001 and 2002 losses. Also based on the intention of the Foundation it is difficult to imagine that it had a profit intention, or was competing with other commercial entities undertaking the same activity. It needs to be awaited whether the Foundation will file an appeal against this decision.