Netherlands asks Austria to replace exemption method by credit method to relief athletes and artists from international double taxation

The Netherlands Government has asked the Netherlands States General for tacit approval of the Protocol of 8 October, 2008 to the 1989 tax treaty that has been concluded between the Netherlands and Austria. As a result of the Protocol, the Convention will be amended concerning one issue: in Austria will follow the credit method instead of the exemption method for the prevention of international double taxation on the income from Netherlands activities of Austrian resident artists and sportsmen.

The amendment is proposed at the initiative of the Netherlands, following its 2007 introduction of the so-called artists and professional sportsmen scheme (ASBR). As a result, the Netherlands levies from January 1, 2007 no longer income tax on income received for activities in the Netherlands by non-resident professional artists and foreign companies. The adjusted ABSR includes the condition that the artist, sportsman or the company must be a resident of a country with which the Netherlands has concluded a tax treaty (or be a resident of the Netherlands Antilles or Aruba).

In situations where a treaty to prevent international double taxation applies, the athletes and artists article applies to income received by artists, sportsmen and foreign companies. This article allocates the taxing rights for artistic and sports activities to the country where the activities are carried out (work).

Under the new ABSR the Netherlands thus no longer imposes tax in these situations. If the country of residence of the artist or sportsmen avoids international double taxation for its residents through the exemption method, then the result will be that no income tax is levied on such compensation. During the Netherlands parliamentary discussion of the ABSR it was indicated that t Netherlands authorities would contact those countries whose resident are entitled to the exemption method in order to try to prevent this double exemption of Netherlands source income.

These countries are Belgium, Bosnia-Herzegovina, Bulgaria, Germany, Estonia, Hungary, Luxembourg, Morocco, Montenegro, Austria, Serbia, Spain, Slovakia, Thailand, Turkey, Venezuela and the Netherlands Antilles and Aruba (Arrangements of the Kingdom of the Netherlands). Source: Dr Dick Molenaar, Netherlands disadvantage its own artists and athletes, NTFR Issue 52, December 24, 2008, 2008/2473.

The Netherlands has subsequently contacted inter alia Austria to prevent double taxation on this income by no longer applying the exemption method, but instead the credit method. This means that this income will in full be taxed by the country residence – in this case Austria. Previously a similar protocol to amend the method for preventing athletes and artists with Estonia (Trb. 2008, 145).

If Austria and the Netherlands would ratify the Protocol during 2009 the change will be effective from January 1, 2010.