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THE NETHERLANDS: Professional soccer clubs may not include marketing intangibles as assets on their opening balance sheet for corporate tax purposes

Following an explicit change in policy of the Netherlands tax authorities, the Netherlands professional soccer clubs have since 1994 been subject to corporate income tax. A dozen years later, Netherlands case law is still pending on the issue of whether the clubs may include a value on their opening balance sheet, which represents the value of one their marketing intangibles. In the case law this is referred to as intellectual property right, divided in a merchandising component and a sponsoring result component. The tax authorities had refused this inclusion (and depreciation thereof), and the taxpayers went into appeal. Apparently this case serves as test case for all professional football clubs. After the Court of Appeal had (partly) dismissed the appeal, the taxpayer went to the Supreme Court and on 24 February 2006 the Advocate ? General to the Supreme Court (hereinafter A-G) Mr. J.A.C.A. Overgaauw published his Opinion (in case 41985). The A-G held that generally spoken the professional football clubs could not include assets representing a marketing intangible on their opening balance sheet. His main argument is based on case law of the Supreme Court in somehow related cases. The A-G held that before 1994 most of the Netherlands professional football clubs were according to the Netherlands corporate income tax legislation subject to corporate income tax. It should be added that foundations etc are only subject to corporate income tax if and in so far as they conduct an enterprise. According to the A-G the tax authorities tolerated until 1994 that no corporate income tax returns were being filed. Therefore, the A-G holds that some existing case law should be applied here. The first case concerned a foundation which became subject to corporate income tax; the Supreme Court did not allow that the foundation included goodwill on its opening balance sheet and it did not have to include an amount for goodwill in its final balance sheet if the tax liability ends (BNB 1991/90). In another case the Supreme Court held that a starting entrepreneur could not include in his opening balance sheet the economic value of a software package which he had prepared in his spare time before the start of his enterprise (BNB 1994/178). This applies if the value of the goodwill (in this case the software package) can be seen as the not-yet-realised income from labour (?other activities?). If inclusion on the balance sheet (and depreciation) were accepted this reward for labour would remain untaxed. According to the A-G the professional football clubs were at the end of 1993 / beginning of 1994 in a comparable situation with the taxpayer in BNB 1994/178: they had already developed a marketing intangible, and in his view they should have already been subjected to corporate income tax. Hence he recommends to the Supreme Court to not allow inclusion of an amount representing a marketing intangible on their opening balance sheets. It should be added that other interesting remarks of the A-G concerned the indeed relevant distinction between the determination of the entire taxable profit during the whole life of the enterprise, and the division of that profit in yearly components according to the Netherlands prudent businessmen principle (?goed koopmansgebruik?). Also relevant is the distinction the A-G makes regarding foundations etc, which would in principle qualify as taxable persons, but who would be eligible for a subjective exemption from this liability (provided for by Article 6 of the Corporate Income Tax Act). If the exemption would end to be applicable and tax liability would start, the A-G held that it would be appropriate to include an amount for the marketing intangible in the opening balance sheet. However, in this case the subjective exemption was not claimed by the taxpayers and according to the A-G did the facts of the case not lead to the conclusion that an exemption would have been applicable. Whether the Supreme Court will agree with this Opinion of the A-G needs to be awaited.
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Dr. Rijkele Betten

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Prof. Dr. Ian S. Blackshaw

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Prof. Guglielmo Maisto
Maisto e Associati, Milano

Dr. Dick Molenaar
All Arts Tax Advisors, Rotterdam

 

Mr. Kevin Offer
Hardwick & Morris LLP, London

Mr. Mario Tenore
Maisto e Associati, Milano

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