May 26, 2021
Taxation of Entertainers and Sportspersons
The income of entertainers and sportspersons is typically taxed in the state where the activities are exercised, in accordance with Article 17 of the OECD Model Tax Convention (‘MTC’). This would apply irrespective of whether the income accrues to the entertainer or sportsperson or to another person, as per the wording in paragraph 2 of the Article.
The Commentary to the Article, as updated throughout the years, provides important insights and clarifications on the wording of Article 17:
Firstly, there is no definition of ‘entertainer’. The article includes a number of examples, which are not exhaustive, such as a theatre, motion picture, radio or television artiste, or a musician but doesn’t provide a clear definition. The Commentary clarifies that the term doesn’t extend to a visiting conference speaker, or to a model performing as such or to administrative support such as cameramen, producers and directors.
There could also be situations where an individual may be both a director and an actor of a show or film. In such a case, one needs to understand what the individual actually does and whether the activities are predominantly to direct or to act. Apportionment could also be necessary in certain situations.
Similarly to the lack of a clear definition for ‘entertainer’, there is also no definition for ‘sportsperson’. The Commentary however confirms that it is not restricted to participants in traditional athletic events, but also covers, for example, golfers, jockeys, footballers, cricketers, tennis players and racing drivers. The Article also applies to income derived from billiards, snooker, chess and bridge tournaments.
The Article applies to income derived both directly and indirectly by an entertainer or sportsperson. In certain situations, entertainers or sportspersons, may be employed and receive a salary rather than a performance payment – under this Article, a Contracting state where the performance takes place, is entitled to tax the proportion of the salary which correspondence to the performance taking place in that state.
The article applies regardless of who is paying the income. Prize money paid by national federations, associations or leagues are also covered by this Article if it relates to a specific event.
Entertainers and sportspersons typically have other sources of income, and are not only paid for their actual performances, but could receive income in the form of royalties, sponsorships or advertising fees. In order to understand whether this Article applies, or other article of the MTC, and therefore of the specific treaty, one needs to understand whether there is a close connection between the payment being received and the performance in a given state. Royalties would typically be covered by Article 12, whereas, if there is a close connection with a performance in a given state, advertising and sponsorship income would be covered by Article 17.
“Image rights’ companies are also tackled in the Commentary. Here again, one needs to understand whether any payments for the use of the entertainer’s or sportsperson’s name, signature or image is closely connected with the performance in a given state. If such connection does not exist, the payments would not be covered by Article 17.
The Article does not only cover income generated for the specific performance but could also cover any remuneration received by the entertainer or sportsperson for time spent on rehearsals, training or similar preparation in a state. This would apply irrespective of whether this is related to the specific public performance taking place.
In view of the difficulty for States to tax non-resident persons, payments which could be taxed in the source state as a result of the rights assigned to it by this article, are typically taxed by way of a withholding tax from the gross payments to the entertainer or sportsperson. In view of the non-exclusive rights of the source state, the entertainer or sportsperson would also be taxed in their state of residence and provided double taxation relief through the credit or exemption method.
For any further information on how Seed can help, please contact Nicky Gouder on [email protected].