Belgium: Court of Appeal of Antwerp decides: No obligation for organiser to check whether tax treaty threshold is passed by foreign artist
The Court of Appeal of Antwerp decided on 11 May 2010 that the organiser of a public event does not have the obligation to check whether the threshold of 3000 USD in Article 14(2) of the (no longer effective) 1970 tax treaty concluded by Belgium and the United States had been passed by an individual performer.
The facts were as follows: a Belgian association (which was not aiming at making profits) organised a yearly music festival in Belgium. The association did not withhold Belgian withholding tax on the payments which it made to several US resident artist groups. The Belgian tax authorities later imposed an assessment on the association for the not withheld withholding tax.
Under Belgian law, payments to foreign artists (and sportsmen) in relation to performances in Belgium are subject to 18% withholding tax. Until recently only limited fictitious deduction were allowed from the gross payment, currently the foreign artist can also choose to file a regular income tax return. In the years at hand this option was not yet available. According to the 1970 tax treaty that had been concluded between Belgium and the US, Belgian as a source country could only tax US resident artists if they either spent more than 90 days in a tax year in Belgium, or if they received more than 3.000 USD from Belgian sources for performances in Belgium. The Belgian tax authorities had published a Decree in which they state that organisers always had to withhold tax on payments to residents of the United States, and that if after the tax year it could be shown that the artist had not fulfilled one of the two conditions in the tax treaty he or she would be entitle to a refund of the withheld Belgian tax.
The Court of First Instance of Hasselt agreed with the Belgian tax authorities that in the case at hand Belgian tax should indeed have been withheld by the organising association. This Court held that the association was obliged to ensure that the US artist had not passed by one of the two thresholds, and the Court mentioned that some of the payments made by the association exceeded USD 3.000.
However, the Court of Appeal of Antwerp did not agree with the Court of First Instance. It held that the burden of proof regarding of the Belgian tax liability is not held by the association. The Court held that it was for the tax authorities to proof that the foreign taxpayer is subject to Belgian tax, and to determine the amount of the taxable income and the taxes due. The Court held that it is not the organiser who has to proof that an exemption is applicable but that it are the tax authorities who have to proof that on the basis of the tax treaty Belgium is entitled to levy tax in accordance with the tax treaty.
Regarding the payments exceeding the threshold the Court of Appeal noted that the Court if First Instance should have attributed the amount to the number of persons of a band that are on the podium. Last but not least the Court held that travel and lodging costs should not be included in the taxable amount.
The decision of the Court is in deviation from the practice as applied by the Belgian tax authorities. This practice included an obligation for organisers to withhold withholding tax on all payment to US resident artists and sportspersons.
The decision may also be relevant for the new treaty that has been concluded in 2006 by Belgium and the United States. Pursuant to Article 16(1) of the 2006 treaty the threshold has been increased to USD 20,000. In the provision it is stipulated that to be included are reimbursed costs and costs paid on behalf of the artist or sportsperson. In the Belgian Parliamentary Documents to the approval of the 2006 treaty it is mentioned that the source state may withhold tax and determine the final liability after the tax year and were applicable should then make a refund. The abovementioned decision of the Court could have an impact on the application of the new situation, it seems that were it is clear that an artist or sportsperson will not be more often than 90 days in Belgium and that he will not receive more than 20,000 USD in the tax year there is not much reason for requiring the withholding of tax which almost certainly will have to be refunded. Regarding residents of other EU Member States this requirement is even more superfluous because later imposition of tax (if required) can be achieved through exchange of information and assistance in the recovery of taxes.