The Netherlands: Netherlands Supreme Court asks prejudicial questions regarding withholding tax on payments to foreign clubs for friendly football matches
INTRODUCTION The Netherlands Supreme Court has decided on 24 September 2010 to ask judicial questions to the European Court of Justice regarding the issue of whether the Netherlands withholding tax on payments to a foreign club for friendly matches that took place in the Netherlands, is in conflict with EC law. THE FACTS In 2002 a Netherlands professional football club made a payment of EUR 133,000 to a UK football club for a friendly match in the Netherlands. Apparently it was specified that EUR 2,720 was meant to cover costs made; furthermore no withholding of wage tax took place. The UK football club paid its players their salary, but did not pay any part of the EUR 133,000 to its players. Later, the Netherlands tax authorities imposed a wage tax re-assessment on the Netherlands football club regarding the pertinent payment. The club went into appeal. LOWER COURT DECISIONS The Court of First Instance held that the Netherlands obligation to withhold wage tax on payments to foreign groups which are not being paid through to the members of the group, is in principle in conflict with the freedom of services provided for by Article 49 of the EC Treaty. Similar payments to domestic groups would not have been subject to wage tax, but would be taking into account for the levying of corporate income tax on that group. The Court of Second Instance disagreed with the Court of First Instance and held that the withholding of wage tax was a proportionate means for taxing this income of a foreign group. The taxpayer then went into appeal at the level of the Supreme Court. On 25 September 2009, the Advice of the Advocate-General to the Netherlands Supreme Court of 6 August 2009 has been published. The Advocate-General presented a thorough analysis of the domestic legislation and literature on the issues. After analysing the Scorpio, Turpeinen, Truck Center and Amurta decisions of the European Court of Justice, he concluded that prejudicial questions should be asked to the European Court of Justice. If the Supreme Court would decide to follow the advice (which it did, see below), it will have to formulate the questions itself; the Advocate-General did not already supply proposed questions. SUPREME COURT DECISION On 24 September 2010 the Supreme Court decided to ask prejudicial questions to the European Court of Justice. The Supreme Court invites the European Court of Justice to answer the following questions (unofficial translation): 1. Is Article 56 TFEU to be interpreted as if there is a restriction on the free movement of services if the recipient of a service provided by a provider established in another member State is under the legislation of the Member State where the service is provided, has to withhold tax on the fees payable for this service, while such withholding obligation does not arise if such service is provided by a provider that is established in the State where the service recipient is residing? 2a. If the answer to the previous question implies that a system providing for a levy of a service recipient does amount to an obstacle to the free movement of services, can then such obstacle be justified by the need for the levy and collection of a tax from a foreign service provider if such foreign company is only for a short period present in the Netherlands and it is therefore difficult to control their activities? The consequence of these difficulties would be that it becomes problematic to apply the right to tax that has been allocated to the Netherlands. 2b. If the withholding is an obstacle, is it then also important that the scheme at a later stage for these situations has been changed in that the amount due has been waived unilaterally by the Netherlands because the implementation of the withholding was apparently not simple and efficient to apply? 3. Does a withholding mechanism go further than necessary considering the possibilities for mutual assistance in the collection of taxes based on in particular Directive 76/308/EEC? 4. When answering the above questions of whether the tax which the fee is payable in the Member State where the service recipient is established, is it then relevant whether the tax withheld may be credited against tax payable in that other Member State on the pertinent fee? Last but not least, as of 1 January 2007 the Netherlands legislator has for most instances abolished the obligation to withhold wage tax on payments to foreign groups. The decision will therefore not be relevant for Netherlands purposes, but may still have repurcussions for similar withholding taxes that are levied in other EU Member States.