23 November 2012 EXAMPLES DOUBLE TAXATION 1. Stichting Rotterdams Philharmonisch Orkest The Rotterdam Philharmonic Orchestra (RPhO) is one of the leading orchestras in Europe (www.rpho.nl). Their hometown concerts are in the venue De Doelen in Rotterdam (NL), where they perform approx. 100 concerts per year. Furthermore, the RPhO plays 40 concerts abroad in Germany, Belgium, France, Austria, UK, USA, Japan and many other countries. Principal conductor and artistic director is Yannick Nézet-Séguin from Canada. The orchestra plays with 100 musicians. In every country, the RPhO needs to deal with source taxation. If not exempted, double taxation will result, because the Stichting Rotterdams Philharmonisch Orkest is exempted from corporation tax in the Netherlands and the musicians are as employees on the monthly payroll. In some countries Article 17(3), which is concluded in 50% of the Dutch tax treaties, can be used, because the RPhO is subsidized for approx. 70% (examples Slovenia, Belgium, Switzerland), while in other countries the conditions for Art. 17(3) are non-profit status (Austria) or performing artistes are not shareholders of the orchestra (France, Canada, UK, USA). The exemption for employees working with their employer in the country of performance still applies for Germany, but will be changed into a subsidized -Art. 17(3) provision from 2014 onwards. Applications need to be made in every country and cause relatively high administrative expenses. But through this, double taxation can be avoided. In other countries no exemption for source taxation is possible, because 50% of the Dutch tax treaties follow Article 17(1) and 17(2) OECD Model Tax Convention, which allocate the taxing right solely to the country of performance (examples Spain, Portugal, Italy, Greece, Russia, Poland, Czech Republic, Sweden, Finland, Argentina, Brazil, India, China, South Africa, Australia and New Zealand). The result from the concerts in these countries is double taxation. The RPhO concert fees vary from 25.000 to 75.000 per concert. Withholding tax rates vary from 10% to 30%, which means that the withholding tax varies from 2.500 to 22.500 per concert. On average the maximum risk of double taxation is 500.000 per year for the RPhO (on a total year budget of 12.000.000).
2. Within Temptation Within Temptation is one of the leading pop groups in symphonic rock music (www.withintemptation.com). The main members are Sharon den Andel (singer) and Robert Westerholt (keyboards). They have 5 accompanying musicians for the shows, who can be considered to be employees. Within Temptation has released several records and performs in the Netherlands, Germany, Belgium, France, Spain, UK, USA and other countries. The production for the tours and shows has become big: besides a management company and booking agency, working each on 10% commission, the group brings rental sound and light equipment, video, firework, other requirements and 20 men crew on the road, including stage hands, guitar techs, security, tour manager and tour accountant. This also leads to expenses for travel, catering and hotels. On average the production expenses are 62% of the performance fees of Within Temptation. Some countries accept the deduction of expenses, while other countries don t. This leads to an average withholding tax of 15% from the gross foreign performance fees resp. 39% from the profit on the foreign performances. Yearly, the foreign source tax varies from 50.000 tot 120.000. Within Temptation can only offset the foreign source tax against the Dutch corporation tax for Within Temptation Entertainment BV. The profit of this BV is affected by the deduction of the production expenses and the salaries for the accompanying musicians and the two main artistes. The foreign tax credit in the Netherlands is restricted to the 20% - 25% corporation tax on the foreign profit, which leads to an effective tax credit of 10.000 to 35.000 per year. The international double taxation for Within Temptation varies from 40.000 to 85.000 per year. 3. Korzo Productions The venue Korzo in The Hague (NL) also produces dance and theatre productions for both Dutch and international theatres and festivals, very often in co-production (www.korzo.nl/nl/productiehuis). Korzo Productions is subsidized by the Dutch government, but the percentage of subsidy varies. The performing artistes are employees of Korzo and on the monthly payroll for a period of some months. Problems are comparable to the Rotterdam Philharmonic Orchestra, but Korzo does not have the funds to hire specialized tax advisers to apply for exemptions in the countries of performances and therefore has to deal with it itself as good as possible. Source tax from performance countries cannot be use d for tax credits, because the Stichting Korzo is exempted from corporation tax and the performing artistes are on the monthly payroll. Furthermore, tax certificates are very often unclear (see examples Spain). This leads to double taxation.
4. Niels Feijen This individual has performed in China and would like to obtain for a tax credit in the Netherlands. But the Chinese tax certificate is not clear, which has led to the result that the Dutch tax inspector did not accept the foreign tax credit (see example). 5. Stichting Toneelgroep Amsterdam vs. Theater Familie BV: unequal treatment Art. 17(3) Toneelgroep Amsterdam is a subsidized, non-profit theatre company in the Netherlands. It plays both classical and modern repertoire, varying from Shakespeare to Elfride Jellinek. It performs mainly in the Netherlands, but also in the Dutch speaking, northern part of Belgium and sometimes in other countries (with subtitles). Theater Familie BV produces commercial musicals and other theatre productions in the Netherlands. It plays Pippi, the musical and Nijntje, the musical, amongst others. These productions are performed in both the Netherlands and the Dutch speaking, northern part of Belgium. Article 17 of the tax treaty between Belgium and the Netherlands allocates the taxing right to the country of performance, including payments to others than the performing artistes themselves (Art. 17(2)), but allows an exemption for artistes being subsidized for more than 30% in their residence country. This means that Stichting Toneelgroep Amsterdam can be exempted from Belgian source tax and falls solely under the normal Dutch rules, taxing the salaries of the performing artistes but exempting the Stichting itself. But Theater Familie BV cannot use this Art. 17(3) exemption and is taxed in Belgium at 18% from gross. It can apply for an advance tax ruling to deduct the production expenses, but this application is time-consuming and assistance from a specialized tax adviser is needed, leading to administrative expenses. Still 18% Belgian tax will be levied on the salaries of the performing artistes + the overhead expenses + the profit of Theater Familie BV. The artistes are on the monthly payroll and it is very problematic to obtain a foreign tax credit for them. Only Theater Familie BV can claim a foreign tax credit against its corporation tax, but this credit is much lower than the Belgian source tax. This difference in tax treatment, the administrative burden and the double taxation for Theater Familie BV leads to unequal treatment and an obstacle for entering the Belgian market.