Foreign sports players, who manage to win a sports event in Belgium, may also face some tax challenges, especially if the prize is not given in cash, but is constituted by a valuable object. In many countries, discussions arise on the tax amounts, due by international champions.
In case a prize is won, this will be subject to Belgian income taxes, which are levied by means of a withholding tax. Although the tax rate of 18% is quite low, the actual tax liability depends of the valuation of the prize.
Inevitably discussions arise with the income tax authorities on such valuation issues and often the fight needs to be continued before the courts. This was found out by a famous international lady tennis player, who managed to achieve the required three tournament victories in order to win the fabulous diamond tennis trophy in Antwerp.
The withholding tax is to be calculated and paid by the organizers of the event. They used the production cost of the trophy of EUR 250.000 as the reference for the tax calculation. The tax authorities had noted, however, that in the agreement with the main sponsor of the event, the value of the trophy was indicated at EUR 1 Million. The natural reflex of any tax authority is the calculation of the tax on the highest possible amount and this approach was also followed by the Belgian authorities.
In the first round of the tax fight, the lower court (Hasselt, 7 july 2010) followed the opinion of the tax payer and accepted the lower valuation at the amount of the production cost. A second round followed before the court of appeal of Antwerp, where the authorities again raised the one million EUR question.
According to the tax legislation, non cash benefits are to be valuated at the actual value, which they represent on behalf of the beneficiary of the benefits. One has to look at the amount, to be spent by the beneficiary in normal circumstances in order to obtain the benefit. It is not by definition excluded that this would be the cost of producing the item.
When looking at an exclusive tennis trophy, it is clear that such object can not be purchased under any normal circumstances. This makes it simply impossible to apply the basic valuation rule and also the court of appeal refers to the cost of the item. The court, however, did not only look at the cost for producing the object as such, but has considered the total amount, spent by the event organizers in order to be able to offer the trophy several consecutive years. When looking at the facts and circumstances at hand, the Antwerp court decided on 20 December 2012 that an amount of 486.000 EUR was appropriate and the taxes where calculated thereon.
It is clear that sports champions every day have to meet numerous challenges in order to be successful and that it may be wise for them to also carefully read the tax law before going for certain prizes…..