THE NETHERLANDS:Court case regarding depreciation on intellectual property rights of a professional soccer organisation

From the season 1994/1995 all 36 Netherlands professional soccer organisation (in Dutch Betaal Voetbal Organisatie, hereinafter BVO) became subject to corporate income tax. Consequently BVOs had to prepare an opening balance sheet. The taxpayer in the case at hand took the position that inter alia its club name, the logo and the clothing (particularly its colour combination) were to be activated. Based on the merchandising results and income from sponsoring the taxpayer held that the value of its intellectual property was NLG 18,214,277. Subsequently the taxpayer took the view that this amount was to be depreciated in 5 years. The Netherlands tax inspector did however not agree with the depreciation of this amount.

The Court of Appeal of Arnhem held in favour of the tax inspector on the basis of the following reasonings. Regarding the merchandising component the Court held that there is indeed a sound basis to activate an amount for the intellectual property right of the BVO (including its name, the logo and the colours of the clothing). The Court did not agree with the calculation of the BVO nor with the calculation of the tax inspector. The Court held that depreciation would anyhow only be appropriate if the value of the intellectual property would have decreased in the tax year (the Court mentioned this could be the consequence of e.g. market developments or insufficient attention for the brand awareness). However, the Court held that the BVO had not in shown that the value of the merchandising component of the intellectual property right had decreased in the tax year and that therefore no depreciation against taxable profit was to be accepted.

Regarding the ?income from sponsorship? component the Court simply held that activation of sponsorship income as part of the BVOs intellectual property was not possible and that hence no depreciation was possible either.

COMMENT: The Court of Appeal did not determine the amount against which the merchandising rights could be activated. From the reasoning of the Court it may be deduced that it held that in case of a visible decrease in value of the merchandising right depreciation against the taxable profit of the BVO would be possible. Such decrease in value could possibly occur in case the BVO would degrade to a lower league (the Netherlands only has two professional soccer leagues) or if for whatever reason its popularity would suddenly decrease substantially.