Dutch tax on loan of football players
Sports Law & Taxation – Part eight: Tax implications in The Netherlands
In previous editions of this journal, you may have read about the tax implications of player loans in various other countries. Now it is the turn of The Netherlands. And although there is similar fiscal treatment of cross-border loan situations in some EU countries, there is plenty to say about specific views and rules in The Netherlands.
The main focus of this article will be on the loan of players to Dutch clubs (inbound), but it will also touch on the Dutch fiscal playing field when players are lent out by Dutch clubs to foreign clubs (outbound).
This article starts with outlining the basics of Dutch tax residency for players and the general fiscal consequences of tax residency for employment income. The article ends with some specifics from the daily practice. It does not cover social insurance.
Tax residency in The Netherlands
A player is qualified as a Dutch tax resident in case the center of his social-economic life is in The Netherlands. This rather broad criterion has been further defined in law and jurisprudence, whereby weight is placed on a number of factors including:
- maintaining a home in The Netherlands;
- spending substantial time in The Netherlands;
- gaining personal income in The Netherlands; and
- having your family with you in The Netherlands.
If a player is deemed to be a tax resident in two states and a tax treaty is in place between these two states, the tie breaker rule of that treaty will decide which country “wins”.
Tax residency starts at the moment the residency criterion is fulfilled and ends at the moment the residency criterion is no longer fulfilled.
For a player on loan to a Dutch club, Dutch tax residency will, in most cases, start on the day they physically arrive in The Netherlands in order to stay and start their contractual work for the Dutch club.
The Netherlands do not have a 183-day fiction for full year residency, nor does nationality play a role with regard to tax residency.It should be noted that such residency based only on actual facts may, in some cases, collide with the 183-day fiction applied by another country.
Consequences of tax residency in The Netherlands
The tax year is equal to the calendar year. Full tax liability on worldwide income starts only from the actual starting date of Dutch residency. If income from sporting employment by a Dutch resident finds its source in another country, generally art.17 and 22 of the tax treaty between The Netherlands and that source country will define if and how The Netherlands will provide avoidance to prevent double taxation.
In situations of inbound loans, we can distinguish three options:
- the Dutch club will pay the total salary of the player during the loan period;
- the foreign club will continue to pay the total salary of the player during the loan period;
- both clubs will pay apart of the total salary of the player during the loan period.
In option 1, both the source country and the residency country are the same, being The Netherlands. As a result, The Netherlands will be entitled to tax the salary with income tax. The Dutch club will be obliged to withhold wage tax and employee insurance contributions on a monthly basis in arrears.
In option 2, both the source country and the residency country are also the same, being The Netherlands. The payer of the salary may be a foreign resident, but the salary relates – at least for the larger part – to work carried out in The Netherlands. As a result of this, the salary is subject both to income tax (due on tax return after the end of the calendar year) and to the withholding of wage tax and employee insurance contributions. In this situation, the foreign club is the tax subject responsible and liable for the withholding. The foreign club must, therefore, register as a foreign employer in The Netherlands: this registration and subsequent payrolling of the loaned player is not a complex operation. The foreign club must also inform its local tax authorities that no local withholdings will be made on the salary payable to this player on loan.
Having the foreign club being compliant is also of great importance for the Dutch hiring club: Dutch law provides fora co-liability fora hiring party (the so-called inlenersaansprakelijkheid). In case the foreign club does not comply with its obligations and thus does not pay wage tax and/or employee insurance contributions on its payments to the player, the Dutch hiring club can be held liable for these default amounts due.
Option 3 may lead to complications and has, in effect, led to a number of court cases in The Netherlands, including the 8 July 2022 verdict by the Supreme Court in a case dealing with the loan of players from a Belgian club to a Dutch club. In general, as previously stated, a player on loan will become a tax resident of the country of the hiring club. In this Court case, the residency was different – but the verdict is still very relevant for any loan situation. This was the case:
A Belgian club lent three players to a Dutch club. All three players remained tax residents of Belgium during the loan period. Next to their salary, the players received annual instalments of a signing fee. One of the players received a one-off signing fee right before the start of the loan period. Since the work state and the residency state were different, the Court had to judge to which activities the signing fee payments could be attributed: to the activities conducted for the Belgian club (in the period before and/ or after the loan period) or to the activities conducted for the Dutch hiring club. Because of the annual character of the signing-fee instalments, the Court concluded that the present instalment should be attributed to the activities conducted during the loan period for the Dutch hiring club. The Court even concluded that the one-off signing fee that was paid before the start of the loan period should be qualified as a payment to be attributed to the Dutch loan period as well. In all situations at hand, the taxation on the various signing fees was allocated to The Netherlands.
This verdict underlines that a Dutch right to taxation on amounts paid by a foreign club can exist on two separate grounds:
- the amount was paid during The Netherlands tax residency. Being a Dutch resident, the player is liable for income taxon his worldwide income which is received, claimable and/or collectable during the period of The Netherlands residency.
- the amount should be attributed to activities conducted in The Netherlands.
In the reverse situation of an outbound loan, the player is lent by his Dutch employer club to a foreign club. This occurs much less in The Netherlands than the inbound loans, which may find its reason in the fact that clubs in The Netherlands have less capital available for permanent transfers than surrounding countries.
In situations of outbound loans, we can distinguish the same three options:
- the foreign hiring club will pay the total salary of the player during the loan period;
- the Dutch club will continue to pay the total salary of the player during the loan period;
- both clubs will pay apart of the total salary of the player during the loan period.
In most outbound loan situations, the player will cease to be a tax resident of The Netherlands. This would only be different if he is lent out to a club in Belgium or Germany and maintains his primary residence in The Netherlands – just like the Belgian players in the Court case mentioned above. In other situations, whereby the player’s partner (and possibly children) remain resident in The Netherlands in a house that is at the player’s disposal too, the Dutch tax authorities could take the position that he too has remained a Dutch tax resident. If this position stands, he is taxable in The Netherlands for his worldwide income. The tax treaty with the working state will then decide on the system to avoid double taxation. Under a limited and ever decreasing number of treaties, The Netherlands will provide for a full exemption on the salary earned abroad: this would apply, for example, for a salary earned in Spain, Morocco, Israel, Luxemburg and Thailand. For a salary earned abroad in any other country by a Dutch resident player, the set-off mechanism applies. This could lead to additional taxation in The Netherlands. When discussing the three options mentioned, we will assume as a main rule that the player is not a Dutch resident anymore.
In option 1, the residency state and the work state are the same, being the foreign country. Taxation on the salary paid by the foreign club is thus awarded to the foreign country. Generally, in tax treaties following the OECD model, a country would be entitled to tax athlete income that is connected to work performed in that country. Such taxation can be executed on appearance fees and prize money awarded to individual foreign athletes who are, for example, competing at a tournament in that country, by way of a withholding tax handled by the organizing entity. It is much more complicated to execute this from team players under foreign employment for matches or training camps held in the hosting country. The Netherlands have long ceased to execute such withholding taxon income generated in The Netherlands by foreign resident athletes. So, no actual limited tax liability arises in The Netherlands for foreign resident players – including our player at hand who has been lent out to a foreign club – conducting certain activities in The Netherlands.
In option 2, the income is not subject to any tax in The Netherlands, as long as all of the player’s matches take place outside The Netherlands and the player is not a resident of The Netherlands. The Dutch club should not, therefore, withhold Dutch wage tax on the salary payments; the club may, however, need to register as an employer in the hiring club’s country in order to pay wage tax there.
In option 3, the right to tax the salary is allocated to the working state and not to The Netherlands, as long as all of the player’s matches take place outside The Netherlands and the player is not a resident of The Netherlands. Similar to option 2, the Dutch club should not, therefore, withhold Dutch wage taxon the salary payments; the club may, however, need to register as an employer in the hiring club’s country in order to pay wage tax there.
It is our experience that foreign clubs -who plan to fully or partially continue to pay the salary of the player lent to a Dutch club – are not too happy about registering as an employer in The Netherlands and convincing their local authorities that they will not withhold and pay local wage tax on that (part of the) salary. In those cases, and if certain conditions are met, a practical solution may be reached by having the Dutch club send an invoice to the foreign club. With the fee paid by the foreign club, the Dutch club can then autonomously settle the salary and withholdings itself. This differs from the situation whereby the Dutch club would receive an invoice fora loan sum payable. The rationale for this reverse invoice is the willingness of the Dutch club to take over the salary obligations or could even be seen as a remuneration for marketing exposure: the Dutch club will have the player on the pitch, thereby increasing his experience and his market value. In the end, is that not what a player loan is all about?