Fiscale behandeling van zaakwaarnemers-vergoeding in voetbal
Does the player have a choice?
Onderstaand artikel schreef Patrice van Oostaijen voor het internationale tijdschrift “Global sports law and taxation reports”.
The Netherlands: Tax treatment of fees paid to football intermediaries
In January 2018, after a long period of negotiations, the Dutch tax authorities concluded an agreement with each Dutch professional football club. This agreement deals with the tax consequences of payments by Dutch clubs to intermediaries, more specifically with the tax consequences of those payments for VAT and wage tax. In that light, this new Dutch regime does not differ in its approach from the rules and policies that have come up in other European countries in the past years. But since every regime has its own characteristics, it’s worth while to describe these Dutch characteristics and the current legal playing field.
During the first 10 years of this century, Dutch football agents were subjected to an unpleasant system for VAT. The rationale behind the system was that an agent provides mixed services, partially rendered to clubs and partially to players. As a result, part of the VAT charged by agents to clubs should not be tax-deductible by the clubs. The system however placed the tax bill with the agent by reducing the initial net amount of the invoice. It turned out to be an unpractical and (internationally) unfair system and everyone was relieved when it was abolished in 2010.
Looking back, this may have been the first specific tax arrangement on agent fees in Europe. In the following years, other countries developed rules that encompassed the mixed nature of agents’ services and the consequences of that mixed nature for VAT and wage tax. In The Netherlands, all seemed quiet for a long time – until this new regime that was concluded in January 2018 and has retro-active effect until January 2017. Since the regime does not constitute a formal law but is only a branch-specific compromise arrangement, all clubs were individually invited to accept. Since the chances of regular acceptance would be understandably low, the tax authorities added a poisonous gift to their acceptance offer: any club accepting the new regime would receive a clean sheet for the period ending December 31st of 2016. Clubs not accepting, would face a posteriori investigations and possible VAT and wage tax assessments plus penalties. You will not be surprised that all clubs signed..
As said, the new regime has tax consequences in the fields of VAT and wage tax. Simply said, a part of the VAT on the agent’s invoice will not be deductible for the club – since this part is attributed to a service which is deemed to be rendered to the player. And as the player would not be able to deduct this VAT if that part was invoiced by the agent to the player himself, nor is the club in his place.
Next to that, the same part of the service which is deemed to be rendered to the player is qualified as a [benefit in kind] salary component. Initially, it was believed that the clubs would be the only liable tax subject for this salary component through a so-called final levy of wage tax. The wage tax due by the club would then be calculated over the benefit in kind, but this would not be brought into the individual salary administration of the player and hence not affect his taxable income: it was to remain a separate burden for the club.
However, in the course of the negotiations between the clubs and the Dutch tax authorities it was decided that regular wage tax would be due on this benefit in kind, instead of the final levy mentioned above. And as such, it was included in the agreement between tax authorities and clubs, stating: the taxable part of the agent fee will be added to the player’s salary as a benefit in kind, and either the player pays the tax on this benefit, or the benefit is grossed up in case the club takes the wage tax for its own account. This description creates the fiscal possibility for clubs to place the wage tax burden of the agent fee on the player. However, whether or not an employer can actually impose such a tax burden on an employee, is not a fiscal question but a question of employment law and civil legal principles.
Arbitration-case 1492 of December 20, 2018
Nothing visible happened in the months after the closing of the agreement between clubs and tax authorities. Then, in the summer of 2018, clubs faced their first wage tax bill on agent fees. And seeing the financial effects, they got together for some brainstorming sessions. I was not present at those sessions and one can only guess as to the motives involved and choices made, but the visible outcome was that one club (FC Twente) decided to inform its players that it would recover the wage tax due on the fee to their agents from their net regular salaries. And FC Twente did so. And, as could be expected, an arbitration procedure with the KNVB (Royal Netherlands Football Association) was started by a player, Danny Holla, against his club FC Twente.
The oral hearing in this case was held on October 30th of 2018, the arbitral award was published on December 20th of 2018. The arbitration panel decided in favour of the player, for several reasons:
- The employment contract between FC Twente and Holla contained a clause, whereby parties would enter into consult with each other in case tax rules on certain benefits would change during the term of the employment contract. However, FC Twente had not entered into such consult and had – unilaterally and without notice – executed the wage tax recovery on Holla. Holla could in good faith rely on the fact that the payment of the agent fee would have no financial consequences for him, since no prior consult had taken place.
- In case an issue occurs which is not explicitly and fully handled by the terms of the written contract between parties, the legal consequences of that issue are also determined by what the parties could reasonably expect from each other. These expectations in this case lead to the conclusion that the wage tax could not be recovered from the player and should remain for account of the club. On of the arguments for this conclusion was that the employment contract did contain clauses in the tax aspects of certain benefits (for instance: players can have 1 seasons pass tax-free; additional seasons passes are taxed as benefits in kind). But the most important argument for this conclusion of the panel (in my opinion), is that FC Twente – by signing the agreement with the tax authorities – unilaterally chose to qualify the agent fee as a benefit in kind for the player and not – as it was in the past and may still be the opinion of all who did not sign the agreement with the tax authorities – as a fee for an intermediary service rendered by the agent to the club. Holla did not make that choice for benefit in kind, and neither did this agent. So Holla should not have to bear the consequences of this unilateral choice made by FC Twente.
The effects of Arbitration 1492
So it seems that all players in The Netherlands under contracts which were signed before this last winter window, are safe and will not need to bear the wage tax consequences of the payment by the club to their agent. This is, of course, unless the employment contract contains an explicit clause that the wage tax due on the payment of the agent fee will be for account of the player and will be recovered from his regular salary.
I assume that this explicit clause will become – from now on – a standard topic of the negotiations between clubs and agents on the player’s employment contract. And it will depend on the negotiation position of the player and the sharpness of his agent whether or not such clause will find its way in the employment contract.
In this light, it is interesting to notice that ± 75% of all agent fees paid by Dutch clubs, are paid by the three traditionally big clubs: Ajax, PSV and Feyenoord. The budgets of these clubs may be big enough to take the wage tax consequences of the agent fees for their own account. But in the end, they too will negotiate their best efforts.
Does the player have a choice?
We saw that the clubs – by signing the agreement with the tax authorities – thereby chose to qualify the agent fee as a benefit in kind for the player, and not as a fee for an intermediate service rendered to the club.
But the player may have a different opinion on this. He may continue to take the stand that his agent has rendered an employment intermediation service only or predominantly. And that this intermediation service benefits both player and club. And that the agent’s negotiation services are a necessary tool to conclude the intermediation process. And that the agent’s ongoing management services for the player (if any) are necessary to secure the relationship with a player for a future employment intermediation. In this view, the intermediation service is leading. And why would a club pay for the negotiations that an agent conducts on behalf of the opposite party? The club doesn’t pay the agent for his negotiation services in case there is no deal, right?
And thus, the player has a choice. If his club will in the future validly recover the wage tax on his agent fee from his regular salary payment, he can make an appeal in his personal income tax return. He will thereby take the position that this wage tax was recovered/withheld for an unjustified reason, and he will reclaim this wage tax as an income tax refund. This may (and will I suppose) then lead to tax proceedings against the tax authorities – very distinct from the arbitration proceedings against his club which was based on employment law and general legal principles.
This tax proceedings will be an addition to the trial tax procedures that were agreed upon between the clubs and the tax authorities. For the clubs may have entered the regime with gentle compulsion from the side of the tax authorities, they have achieved the right to have the regime (and its underlying assumptions on the nature of agent services) reviewed by independent courts.
And to complete the story, Dutch agents will soon have to enter into discussions with the tax authorities on the VAT-aspects of their transactions with clubs in other EU-countries. For the tax authorities may feel that 21% Dutch VAT should be charged on the agent’s invoice to a foreign club – the result of their formal opinion that the agent’s service is rendered to the player. The agents are likely to maintain their opinion that their services are fully or predominantly intermediary services rendered to the club and that their invoices to foreign clubs should contain no Dutch VAT but should be under the reversed charge mechanism.
So in the end, all football stakeholders will continue to cross swords with the tax authorities. I will by that time happily inform you on the results.
Patrice van Oostaijen LLM, civil and tax lawyer
Founder of Maguire Tax & Legal BV in Amsterdam
Advising agents and players since 1996