Features
Scorpio Case Stings Euro Tax Laws
Harald Grams and Dick Molenaar look to have made a legal breakthrough that will shake up tax laws in most of Europe’s major live music markets.
Regular touring territories including Germany, France, Spain and Italy are among the countries that need to change the way they tax musicians from fellow EU member states.
It could also be good news for U.S. acts. Molenaar said the October 3rd European Court of Justice victory is a crucial step toward unifying EU tax law.
“When all countries come to operate the same system, I can’t see the law being framed in such a way that it would only apply to EU acts. It would make sense to treat all visiting acts in the same way,” he explained.
Grams and Molenaar’s June 2003 “Gerritse” case victory established the principle that countries that apply a gross withholding tax on artists’ earnings are in breach of Articles 59 and 60 of the EC Treaty.
It means an artist is entitled to claim expenses against withholding tax, whereas the October 3rd ECJ ruling took that a step further by saying the artist is also entitled to deduct those expenses at source and only get taxed on the gross profit.
Belgium, Austria, Sweden and Poland are also among the countries that’ll need to change their non-resident artist tax system into net taxation, after the deduction of direct expenses.
Of the 25 EU member states, only the U.K., Ireland, Holland and Denmark have tax regs that fall within the EC Treaty. Denmark, which has a 25 percent VAT rate, doesn’t collect withholding tax.
Countries that have been withholding taxes, at rates as high as 25 percent, will now have to follow something closer to the U.K. tax model, which has allowed expenses to be deducted at source since January 1987.
The Dutch have been running a similar system, but that’ll be scrubbed at the end of the year because the government has decided to stop bothering to tax non-resident artists and athletes.
Finance minister Gerrit Zalm made the announcement at the beginning of September, although the argument for such a course of action first appeared in Molenaar’s “Taxation of International Performing Artistes,” the thesis the All Artistes (Rotterdam) director wrote when studying for his doctorate.
Zalm and the government may also have been persuaded by the fact that taxing visiting EU artists and athletes was only bringing in about euro 6.4 million per year, which is less than 0.01 percent of the Dutch treasury’s euro 100 billion annual tax income. When the credits have been paid out to the Dutch acts that have been touring abroad, the net tax income from artists and athletes was very close to zero.
Apart from the scrapping of the tax, the other big plus for Molenaar and Grams was that the Dutch government also said it intended to tell Paris-based OECD, the organisation that frames international tax treaties, that other EU countries should consider following suit.
As far as the Dutch government is concerned, it would be better if artists and athletes just paid tax on foreign earnings in their country of residence – as opposed to the country of performance.
Just as the case that first proved that EU tax laws are unfair to artists became known as “the Gerritse case,” the one that now allows artists to deduct costs at source is likely to become “the Scorpio case.”
It reached Luxembourg and the European Court Of Justice because Folkert Koopmans’ Hamburg-based
The German tax authorities have softened their approach since Gerritse, but are still only allowing expenses to be deducted from the withheld tax at the end of the year.
In 1993, Koopmans held on to his expenses at source and the Bundesfinanzhof wanted to check if Articles 59 and 60 of the EEC Treaty – which deal with the freedom of movement of labour within the EU – entitled him to do that.
By answering “Yes,” the court is saying all EU acts can deduct their expenses at source.
The curious prospect of having a ’93 tax issue being decided by a 2003 ECJ ruling only happened because, at the time of the ruling, the EU Court of Justice Advocate General said he felt there should be no legal limit on how far back a company can go to apply for rebates on taxes that were collected outside of European rules.
– John Gammon