THE NETHERLANDS: Payments for image rights to football player to be taxed as salary
The Court of Appeal of Arnhem recently dealt with a case in which a Belgian professional football player received from the Netherlands club for which he played not only a regular salary, but also regular payments for the image rights of the football player.
The facts of the case appear to have been as follows: the Belgian football player was from 1 December 1995 to 1 July 1996 playing for the Netherlands football club on the basis of a rental agreement with a Belgian professional football club. He earned then NLG 7,500 per month, and in addition the player was entitled to premiums and holiday payments. The player had to wear the outfit of the club, and was not authorized to conclude marketing contracts with third parties without the permission of the Netherlands club.
In the beginning of 1996 the Netherlands club started to negotiate with the player regarding an extension of his contract and a transfer from the Belgian club. In the minutes of the Netherlands football club mentioning was made that the player had positively reacted to the proposal (NLG 300,000 per year). On 2 April 1996 an agreement was reached between the parties, and in a letter of 3 April 1996 is was stated that the club was prepared to pay an amount of NLG 1,500,000 for a period of 5 years. In the letter it was also stated that the payments would take place for an amount of NLG 750,000 via a construction whereby the player did not have to pay income tax, and the other NLG 750,000 would be paid in five equal installments.
The chairman of the club was informed in a memorandum that if the provisions in the first-mentioned agreement, under which the player transferred his image rights to the professional football club, would for tax and for labor law purposes not lead to an employment relationship between the player and the football club, the income from the agreement would not have to be considered as employment income.
The decision of the Court then cites several provision from the license agreement:
- the football player owns his portrait right;
- the football player intends to deposit his portrait and name with the Benelux Bureau;
- the club intends to use the portrait and name of the football player; and
- the football player is prepared to allow a license to the football club.
The football player then allowed a non-exclusive license to the club to use his portrait and name in relation to the production, distribution, promotion and sales by the football club if brochures, promotion articles and other goods that are produced and sold by the football club. Further more, the license was inter alia limited to the Netherlands, Belgium and Luxembourg. Then there was a separate agreement dealing with the treatment in case the labor agreement would be ended before the end of the 5?year period for which it was concluded.
Except for the use of the portrait of the football player on a poster for the 1999/2000 football season, the club had not made use of the license agreement. On 18 February 1999 the football club received a payment of NLG 1,500 for the participation of the player in a television program, which the club paid through to the player. The amounts due by the club under the license agreement (in total NLG 882,000) were paid in three equal installments of each NLG 294,000 on 6 September 1996, 6 March 1998 and in 1999.
Following an audit by the Netherlands tax authorities, the tax authorities took the position that the payments for the license agreement actually constituted employment income. The inspector then imposed a reassessment on the football club, increased with a fine of 25%.
Before Court the representative of the player mentioned that he was not aware of how the value of the image contract was determined. With third parties no negotiations have taken place. Regarding the fine, it was stated that it should be reduced to 5% because the imposed fine was disproportional and because of the long length of the proceedings. The Tax Inspector added that the agreed salary (i.e. without the payment for the image rights) was to low for the category of players to which the player belonged. For the player a disability insurance had been concluded on the basis of a yearly salary of NLG 260,000.
The Court of Appeal concluded that indeed the payments for the image rights should actually be characterized as employment income. The Court also mentioned the use of the word ?construction? in the letter reporting the negotiations. The Court held that in principle a fine of 25% would have been appropriate, but in light of the long proceedings the Court reduced the fine with 10%. In addition the Court decided that the football club had to pay the costs of the court procedure (the amount of which was determined on the basis of the applicable formula at NLG 644).