The Netherlands: Deductible costs of a foreign artist making a performance in the Netherlands

The Court of Appeal of ?s-Hertogenbosch on 23 June 2004 dealt with a case involving the deductibility of travelling by private air plane and of tax consultancy advice. The facts of the case were as follows: an international renowned artist made a European tour from 27 April 2002 until 6 June 2002. On 5 June 2002 the artist made with his band a performance in the Netherlands. Regarding the performance in the Netherlands an agreement was concluded between the Netherlands resident company NN BV, and a LLC controlled by US law.
According the Netherlands wage tax act NN BV was withholding agent regarding the payment it had to make to the LLC. As provided for in the wage tax act (Art. 35(4)), the agent requested from the tax authorities a statement in which the amount if deductible travel, accommodation and other costs is determined. On this amount no withholding needs to take place. The Netherlands inspector indeed provided the statement, in conformity with the request of the taxpayer. But then the taxpayer asked for an amended statement, in which the amount of costs would be increased by the travel costs of the artist (and part of his crew) from and to the Netherlands and the costs of the tax advisor, which the LLC had to hire for dealing with the Netherlands wage tax obligations.
The increase concerned travel costs of flying from Hamburg to Rotterdam, and from Rotterdam to Paris. The artist claimed an amount of Euro 11, 123, based on an estimate of the entire travel costs during the European tour. The tax inspector only agreed with an amount of Euro 7,334, arguing that a more precise proof of the costs should have been provided for and also that not the two flights should not completely be taken into account. The costs of the tax advisor amounted to Euro 1,950. The artist objected to the second cost statement of the tax inspector.
The Court of Appeal held against the artist. Regarding the estimate of the travel costs it held that the amount allowed by the tax inspector was sufficient, considering in particular that the taxpayer had not amount half of these costs to the previous and the next performances. [The artist had mentioned that these costs could not be deducted in France and Germany.] Regarding the costs of the tax advisor of LLC, the Court held that these costs could not be considered as deductible costs for the artist.
Lessons from the case are that the Netherlands does permit deduction of certain costs of performances by foreign artists. However, there needs to be a sufficiently clear relation with the performance in the Netherlands. An important procedural issue is that it is the artist who has to object to the cost statement that is provided by the Netherlands tax authorities.