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The Netherlands: The Supreme Court confirms international economic double taxation of internationally active artists and sportspersons

By Dr Rijkele Betten

On 24 September 2021, the Netherlands Supreme Court (Nr 20/01875) decided that an international active Netherlands resident DJ could not credit foreign taxes levied from his BV against income tax due on his personal taxable income.

As is commonly known, source countries do often tax income earned by non-resident individual artists and sportspersons. This tax right is also utilised when that income is paid to a company held by that individual. Already, the 1963 OECD Model contained in Article 17 a provision that allocated taxing rights to source countries. From 1977, the OECD Model contains an additional tax right for source countries if the income is paid to a company rather than directly to the artist or sportsperson. Arguably, in many countries this addition was not even necessary for effecting the tax right for source countries in case the payment was not made to the artist or sportsperson directly.

Economic double taxation may occur if the company of the artist or sportsperson is not able to credit all foreign withholding taxes against the domestic corporate income tax due by the company of the artist or sportsperson. Now that corporate income tax rates have in many countries decreased to around 15%, foreign withholding taxes (often on gross payments) are, in many cases, higher than the corporate income tax due on the net taxable profit of the company.

In the case at hand, a Netherlands resident DJ claimed that the excess foreign taxes due by his company should be allowed as a credit against his personal income tax due. Although this may seem a quite far-fetched claim, Advocate-General Wattel advised the Supreme Court to allow such claim. He based his argument on 2007 case law of the Netherlands Supreme Court, according to which Netherlands’ sportspersons were entitled to exempt income that was allocable to their active sporting days spent in countries with which the Netherlands has concluded a tax treaty with a provision like Article 17 of the OECD Model, in combination with the exemption method for avoiding double taxation on income covered by Article 17.

Indeed, one can make the point that, if an exemption can be allowed no matter whether foreign tax is paid by either the sportsperson or his company, this identification of sportsperson and his company should also apply for the crediting of foreign taxes. And this was the advice of Wattel to the Supreme Court

However, the Supreme Court denied the claim. It stated (unofficial translation into English):

The plea argues that it follows from the (RB: earlier) judgments that the granting of double taxation relief to an athlete or artist cannot be subject to the condition that the foreign income concerned must also be specifically taxed there. The argument fails. In the cases concerned, the relevant tax treaties provided that income received abroad was exempt from Netherlands income tax. When avoiding double taxation using the exemption method, it is not required that the income in question has actually been taxed abroad, and therefore also not whether tax has been levied on the taxpayer in question there. In the case at hand, however, it is not a question of the application of the exemption method, but of the application of the credit method. This concerns credit of tax actually levied abroad from the taxpayer and it is therefore important whether, and if so from whom, that foreign tax was indeed levied. Therefore, from the fact that in those judgments no significance was attached to the way in which the fees were taxed in the source State, it cannot be concluded that this is also irrelevant in the case at hand.”

The outcome of the proceedings may not be surprising for international tax experts. Yet, the parallel and contradiction with the earlier case law of the Netherlands Supreme Court are striking and now that the Advocate-General advised for the benefit of the taxpayer it is fair to state that the outcome could have been otherwise. It was not, and supposedly the remedy must be that the DJ receives his income directly so that foreign withholding taxes can be credited. Depending on the facts and circumstances, it may, of course, be that it is overall more beneficial to maintain the current set-up and accept the existence of non-creditable foreign withholding taxes.

Dr Rijkele Betten may be contacted by e-mail at ‘This email address is being protected from spambots. You need JavaScript enabled to view it.