Artists, live industry
by Dick Molenaar, All Arts Tax Advisors
The Dutch government has decided to abolish the taxation of non-resident artistes and sportsmen per 1 January 2007. This radical change attracts special attention, because the Netherlands has the right to levy a source tax from non-resident artistes and sportsmen under 74 of its 78 bilateral tax treaties, in which it follows Art. 17 of the OECD Model closely. But the government believes that the tax revenue from this special group of taxpayers is too low and the administrative burden is too high to justify a source taxation. The Netherlands prefers that only the residence country levies tax from their international performing artistes and sportsmen. This is an important deviation from the recommendation by the OECD in Art. 17 of the Model Treaty, in which the primary taxing right has been allocated to the country of performance.
Earlier change in 2001
In 2001 the Netherlands already changed its taxation from non-resident artistes and sportsmen by allowing the deduction of expenses prior to performances and accepting normal income tax returns after the year. The Netherlands did not want to follow the recommendation of § 10 of the Commentary on Art. 17 OECD Model anymore, in which the OECD allows countries to levy a final source tax from non-resident artistes and sportsmen on a gross basis. Many other countries still use this gross taxation, although at lower tax rates (15% – 30%) than the normal rates. This is especially interesting for EU Member States after the decision of the European Court of Justice in the Arnoud Gerritse case (12 June 2003, C-234/01), in which the court ordered that expenses have to be deductible. Taxation on a gross basis is in breach with the freedom principles of the EC Treaty and EU Member States need to change their legislation. But the Netherlands had taken action already earlier, in 2001, following the examples of the net taxation of artistes and sportsmen in the United Kingdom, the United States, Australia and New Zealand.
Evaluation of the taxing rules in 2004
In 2004 the new Dutch artiste and sportsman tax rules were evaluated. Conclusions were that the administrative burden was high for the artistes and sportsmen, the promoters and the tax administration, and that the tax revenue was low. Per year the average tax revenue was only 6,4 million euros at a total tax revenue in the Netherlands of 100 billion euros, which is less than 0,01% of the total. And when the tax credits for resident artistes and sportsmen, who had been performing abroad, were deducted from these figures, the balance of the tax revenue would even be close to nil. The conclusion that the tax system was complicated with just little tax revenue was also published in Dick Molenaar, “Taxation of International Performing Artistes” (IBFD, Amsterdam, 2006), in which the special artiste tax system in the various countries of the world was studied.
Discussions with arts and sports organization
After discussions with representatives of arts and sports organizations and specialized advisers, the Dutch Minister of Finance has decided to bring an end to the special source taxation of non-resident artistes and sportsmen in the Netherlands per 2007. The country is not obliged to use the taxing right following from Art. 17 of the various bilateral tax treaties. By not using Art. 17 the normal taxing rules as specified in Art. 7 (Companies, Independent work) and Art. 15 (Employees) of the OECD Model Treaty will apply to non-resident artistes and sportsmen in the Netherlands.
Only for artistes and sportsmen from treaty countries
Important is, that the end of the non-resident artiste and sportsman taxation will only apply to artistes and sportsmen living in a country, which has a bilateral tax treaty with the Netherlands. Reason for this is that the Netherlands still wants to counteract tax avoidance schemes with artistes or sportsmen pretending to live in tax havens. An official certificate of fiscal residence will be needed for a tax exemption in the Netherlands, giving the residence country the information that performance income from the Netherlands can be expected in the next income tax return of the artiste or sportsman. The Netherlands has a network of 78 tax treaties, covering most of the countries in the world. For artistes and sportsmen from non-treaty countries the existing source taxation in the Netherlands remains the same as it has been until the year 2006.
Tax exemption method
In 12 of the 78 Dutch bilateral tax treaties double taxation for the performance income which falls under Art. 17 is prevented by means of the tax exemption method. When the Netherlands does not use its taxing right anymore and the residence country would exempt the Dutch performance income, the result would be double non-taxation. To avoid this, the Netherlands will approach these treaty partners in the coming months with the request not to allow tax exemption anymore for Dutch performance income. This may result in a protocol to the treaty. The other 66 Dutch bilateral tax treaties contain the tax credit method, giving the residence country the full taxation in case of absence of Dutch source tax.
Fairer taxation for artistes and sportsmen
The government of the Netherlands believes that their action takes away an obstacle for international performing artistes and sportsmen and leads to fairer taxation. On OECD and EU level the Netherlands will ask other countries to follow this initiative.
© 2006 Dick Molenaar, All Arts Tax Advisers, Rotterdam, the Netherlands Reprinted with permission of the author. First published in abridged form in Tax Notes International, September 11, 2006 at p. 889
The European Live Music Forum have called for an end to withholding and ‘at source’ taxation of artists in Europe – ELMF Board member Hans Hjorth said “The implementation of equal principles of taxation for the cultural sector as for other legitimate trans-national business activities is long overdue. The Dutch initiative indicates that a solution, at least within the framework of the European Union, could be very quickly established”. Contact firstname.lastname@example.org for more details.