Taxation of signing fees: Belgian clubs obliged to withhold Dutch wage taxes

July 2, 2021

#sportslaw #wagewithholdingtax #football #basketball #BeNeLeague #signingfees #loyaltybonus

30 June 2021 – A recent Dutch court of appeal judgment highlights the issue of the taxability of signing fees following an outgoing loan abroad, and the importance of aligning the tax position in both countries.

Case at hand

In this case, a Belgian club appeared before the Dutch court after a dispute with the Dutch tax authorities. The club had loaned out three Belgian football players to a Dutch club. The Belgian club paid signing fees to the players in periodic instalments, in addition to their regular salaries. During the loan period, the football players continued to live in Belgium.

The court of appeal held that, under the double tax treaty between Belgium and the Netherlands, the signing fees are taxable in the country where the professional activities to which the income relates are exercised.

By way of example:

  • The employment contract between the Belgian club and the player provided that the player was entitled to a signing fee of 350.000 EUR in July 2010;
  • The signing fee related to the season 2010/2011;
  • During this season, the player was loaned out to a Dutch club for eleven months;
  • The court accepted that a pro rata amount of the signing fee was obtained for the participation in the Dutch competition.

In this example, the Netherlands has taxing rights over the part of the income that relates to the activities performed in the Netherlands, i.e. over a taxable basis of 320.833 EUR ((11/12 *350.000 EUR)

As a consequence, under Dutch tax law, the Belgian club was obliged to withhold Dutch wage withholding tax on part of the signing fees it paid to the player. Since the club had not done so, the Dutch tax administration imposed interest on arrears and a fine.

Of course there is also a Belgian side to this story. The club presumably (wrongfully) withheld Belgian withholding tax on these payments, which will have to be recovered by the player through filing his Belgian personal income tax return.

Key take away!

Many jurisdictions other than the Netherlands have similar tax rules. In case of an outgoing loan abroad whereby the Belgian club continues to pay (a portion of) the salary, it is thus crucial to verify where the income is taxable and to fulfill the relevant withholding obligations accordingly.

Signing fees and loyalty bonuses, very common in Belgium, are often difficult to allocate over the different sport performances in the different countries. The outcome of the analysis often largely depends on the wording of the underlying contracts. Our advice is to anticipate this when drafting the employment contract and to specify the performances and the period to which each bonus relates at the time of conclusion of the contract. This avoids taxes being paid in the wrong country.

ATFIELD can assist clubs and players with their tax compliance obligations both in Belgium and abroad.

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