Netherlands: Artiste not entitled to compensation for (former) frontier workers under 2001 Netherlands ? Belgian tax treaty

Per 1 January 2003 a new tax treaty became applicable between the Netherlands and Belgium [the treaty was concluded in 2001, and hereafter reference is made to the 2001 treaty]. The former treaty [which was concluded in 1970, hereafter referred to as the 1970 treaty] included in its Article 15(3) a frontier worker provision, under which taxpayers residing in the frontier area of one country and working in the frontier area of the other country, were only subject to income tax in their residence country.

The 2001 treaty did no longer include such a provision. In order to compensate affected taxpayers the new treaty did include a provision for frontier workers. This provision, Article 27, contained two elements: one regarding disadvantages from the levying by Belgium of both income tax and social security premiums and one regarding a compensation for any net loss of income. According to the treaty provision the first benefit is available to income taxable by Belgium under Articles 15, 16, 17 and paragraph 6 of Article 18 of the 2001 treaty whereas the latter benefit was only available for income covered by Article 15, paragraph 3 of the 1970 treaty.

In the case at hand the taxpayer was a resident of the Netherlands who was employed by an opera choir in Belgium. The opera ensemble held around 3 or 4 performances per month, and the remainder of the time was spend on rehearsals etc. The Belgian opera ensembles withheld wage tax on the salary of the singer.

For Netherlands income tax purposes the taxpayer claimed the last mentioned credit available under the tax treaty that was available for such frontier workers. However, the Netherlands tax authorities refused to allow for this compensation because in their opinion the income of the singer was both under the 1970 and the 2001 tax treaty covered by the specific tax treaty provision dealing with artistes and sportsmen.

The taxpayer held that he was covered by Article 15 of the 1970 and 2001 tax treaty.

The Court of First Instance of Breda reasoned as follows. Since Article 17 contains a lex specialis to Article 15 the income of the taxpayer was covered by Article 17 and the taxpayer was not entitled to the benefit for (former) frontier workers.

In our opinion the Court of First Instance misinterpreted for the 2001 treaty the lex specialis which its Article 17 contains. Article 17 is meant to expand the right to tax the income of artistes and sportsmen for source states. The reason for the article is that treaty provisions such as Article 15 of the OECD Model provide for income artistes and sportsmen only in limited situations allocates a right to tax to the source state. Article 17 does nothing more than to expand the right to tax for the source state regarding income from artiste or sports activities within its territory.

The article therefore states that ?notwithstanding the provisions of (?) Article 15? etc. The article does not at all state that Article 15 is not applicable to sportsmen and artistes, in fact it explicitly states that Article 15 is still applicable!

In our opinion the decisive issue is whether the taxpayer was under the 1970 treaty to be treated as a frontier worker, or whether under the 1970 treaty Belgium was allowed to tax the income of the artiste on the basis of its Article 17. On the basis of the text of the 1970 treaty it appears to be clear that indeed Belgium was entitled the income of the taxpayer at hand only on the basis of Article 17 of the 1970 treaty.

The taxpayer can therefore in this case not benefit from the fact that for the application of the 2001 treaty Belgium is already under its Article 15 entitled to tax the Belgian source income of the taxpayer. Article 17 is under the 2001 treaty not needed to allocate a tax right to Belgium and therefore not applicable to the income of the taxpayer.