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The Netherlands: Application of Netherlands tax treaties to transfer fees: Article 15 or Article 17?

Before the Netherlands Supreme Court a rather factual case is pending regarding the taxation of the part of the transfer fee that was derived by a professional football player, who played until the end of 2001 in Sweden and from 2002 onwards in the Netherlands. It appears that the facts were as follows: the player played in Sweden until 2001. During the end of 2001 the Swedish club and the player concluded a contract with a Netherlands football club. On the basis of the contract between the player and the Swedish club, the player was entitled to 20% of the transfer fee (over maximally 20 million SEK). The new contract was signed on 7 January 2002, and the Netherlands club paid the transfer fee to the Swedish club on 7 January 2002. The player moved on 10 January 2002 to the Netherlands. The Swedish club and / or player were than in contact with the Swedish tax authorities to ensure proper taxation of the part of the transfer fee to which the player was entitled. The ruling of the Swedish tax authorities was received on 5 April 2002, and the payment was made on 25 April 2002 to a Luxembourg bank account of the player. The player did not include the transfer fee in his Netherlands 2002 income tax return. The Swedish tax authorities informed the Netherlands tax authorities regarding the payment of the transfer fee. The player argued that the amount of the transfer fee became available to him before he became a resident of the Netherlands, i.e. on 9 January 2002. The tax authorities were not convinced by this argument and imposed income tax by way of a reassessment. [There is also a dispute about the validity of this reassessment, but this issue is outside of the scope of this summary.] The player went into appeal at the Court of First Instance. That Court held in favour of the player and held that the payment of the amount of the part of the transfer fee was related to the players activities in Sweden. Also because it was covered by Article 17 of the tax treaty concluded between the Netherlands and Sweden (which is similar to Article 17(1) of the OECD Model treaty), the payment was held to be outside the Netherlands tax jurisdiction. The Netherlands tax authorities went into appeal, and the Court of Appeal held effectively also in favour of the player. The Court of Appeal held that the amount of the transfer fee had not become payable before 10 January 2002, but then the Court reasoned that back payments for activities covered by Article 17 of the treaty are subject to Article 15 of the treaty. The Court also held that in this case Sweden was not to be considered as the host country for sporting activities, but merely as the former country of residence and country where the employment was exercised. Application of Article 17 would according to the Court of Appeal in this case be in conflict with the ratio of that provision. The Netherlands had to apply an exemption (with progression) to the income on the basis of the Articles 15 and 24(3) of the Treaty. If the income would have been subject to Article 17 only an ordinary credit for Swedish taxes would have been available. Now the Advocate-General holds that the transfer fee is directly relating to the public sports activities of the sportsmen and therefore subject to Article 17(1) of the tax treaty. Thus the Netherlands would be able to tax the part of the transfer fee received by the player, under the obligation to allow for an ordinary credit for Swedish taxes paid. Also on the other issue the Advocate-General held in favour of the tax authorities. The decision of the Supreme Court is still to be awaited.
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The editors of  the Journal Sports Law & Taxation are Professor Ian Blackshaw and Dr Rijkele Betten, with specialist contributions from the world's leading practitioners and academics in the sports law and taxation fields.

The Editors

Managing editor
Dr. Rijkele Betten

Consulting editor
Prof. Dr. Ian S. Blackshaw

Editorial board

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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