INTERNATIONAL TAXATION

TAXATION OF ENTERTAINERS AND SPORTSPERSONS

Taxation of entertainers and sports persons of one state performing in another state is governed by special article in the arena of International Taxation. Both OECD and UN convention gives the Source Country greater taxing powers through Article 17. Article 17 of the OECD Model Convention has overriding effect over Article 7 and 15, and it gives source state those taxing rights which are not otherwise available to a Source State under Article 7 and 15

Under Article 7 the entertainers or sportsperson might not be taxable in the source country at all as neither they stay in the country they have come to perform for sufficiently long time nor they conduct any business activity in the source country through any PE

So Article 17 of both OECD and UN Model convention gives source country the right to tax the performance fees of residents of the other states, earned in the source state even when the artistes does not have any PE in the source state. This taxation right of the source state is reasonable on the ground that government of the state of performance gets its share of tax on the income generated by the non residents from the activities performed in its jurisdiction which the government of the source state otherwise could not have get

Further Article 17.1 does not restrict the right of the residence state to tax the income of artistes/sportsperson, who are its resident, under its domestic tax laws. Now when residence state also levies tax on the income of artistes/sportsperson on the basis of residence of the said persons, double taxation may occur. This double taxation effect is mitigated in the residence state by either the way of tax credit or tax exemption method. Source countries are mostly withholding tax on Gross Receipts of the non resident artistes or sportspersons

FOR INSTANCE : If a canadian citizen (artist) is performing in India and remuneration earned by him/her for his services rendered in India shall be taxable at income tax rate of 30%(in the absence of DTAA) but DTAA prescribes general rate of 15% tax to be charged on particular income. Therefore, Canadian citizen shall be charged at 15% rate(as provisions of DTAA overrule provisions of income tax).

FURTHER TAXATION OF ENTERTAINERS IS PRESCRIBED UNDER SECTION 115BBA OF THE INCOME TAX ACT(1961):

1) Where the total income of an assessee,

(a) being a sportsman (including an athlete), who is not a citizen of India and is a non-resident, includes any income received or receivable by way of

(i) participation in India in any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport; or

(ii) advertisement; or

(iii) contribution of articles relating to any game or sport in India in newspapers, magazines or journals; or

(b) being a non-resident sports association or institution, includes any amount guaranteed to be paid or payable to such association or institution in relation to any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport played in India.

(c) being an entertainer, who is not a citizen of India and is a non-resident, includes any income received or receivable from his performance in India the income-tax payable by the assessee shall be the aggregate of

(i) the amount of income-tax calculated on income referred to in clause (a) or clause (b) or clause (c) at the rate of twenty per cent; and

(ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income referred to in clause (a) or clause (b) or clause (c) : Providedthat no deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the income referred to in clause (a) or clause (b) or clause (c).

(2) It shall not be necessary for the assessee to furnish under sub-section (1) of section 139 a return of his income if

(a) his total income in respect of which he is assessable under this Act during the previous year consisted only of income referred to in clause (a) or clause (b) or clause (c) of sub-section (1); and

(b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.

WHAT IS DOUBLE TAX AVOIDANCE AGREEMENT (DTAA)

The Double Tax Avoidance Agreement(DTAA) is a treaty signed by two countries. The agreement is signed to make a country an attractive destination as well as to enable residents of one or another contracting nation toget relief from multiple tax payments. DTAA does not implies that the NRI can completely avoid taxes, but it does mean that the NRI can avoid paying higher taxes in both countries. DTAA does allow an NRI to cut down on their tax implications on the income earned in India. DTAA also reduces the instances of tax evasion.

INCOME TYPES COVERED UNDER DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA)

Under the Double Tax Avoidance Agreement, NRIs dont have to pay tax twice on the following income earned from :

• Services provided in India.
• Salary received in India.
• House property located in India.
• Capital gains on transfer of assets in India.
• Fixed deposits in India.
• Savings bank account in India.

ARTISTES Vs ENTERTAINERS

Though the most of the articles of DTAA’s includes labelling as Artistes and Sports persons but the first para of the Article uses the term “entertainer” instead of “artistes”. The term sportsperson is more or less clear, so concentrating on the term “entertainer” and “artistes” and reading the relevant part of first para of Article 17 it can be concluded that not all the artistes would fall under the net of Article 17. Article 17.1 of OECD Model Double Taxation Convention read as under and relevant portion has been underlined.

FORGOING OF TAXING RIGHTS BY SOURCING STATE

Due to small tax effect and high administrative costs some countries like Netherlands have taken unilateral decision not to use taxing right as source state under Article 17 for non resident artistes and sports persons from the countries with which it was bilateral tax treaties. Further other countries have been forgoing there taxing rights as source state for specific big sports events being organized in their country. Some big sports bodies have also been laying this condition before the source states to forgo their taxing rights for non resident sports persons during specific sports events before giving them organizing rights.

AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION

1. The article17{1} of the act covers the persons :

(i) if he/she is the resident of the contacting state.

(ii) if he/she is entertainer or a sportsperson.

(iii) if he/she derives income from personal activities provided in other contracting state.

2. As per article 17 :

(i) income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste or a musician, or an athlete, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.

(ii) Where income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to another person, that income may, notwithstanding the provisions of Articles 7 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.

(iii) The provisions of the act shall not apply if the visit to a Contracting State of the entertainer or the athlete is directly or indirectly supported, wholly or substantially, from the public funds of the other Contracting State, including any political sub-division, local authority or statutory body of that other State.

CONCLUSION

Article 17 has to be applied by the source state as per the spirit of the said article after understanding the objective behind the same. This article singles out a specific group of services from entertainers and sports persons for special treatment. They are taxed at source even without any Business Connection and PE. Source state should exercise this special right only to the extent envisaged by the Article and not go beyond and try to tax every payment even remotely linked to artistes. Source country gets its share of taxes by way of withholding taxes from payments made to entertainers and sports persons and then it is left to residence state of the performer to provide relief by tax credit or exemption or other way. Proper application by source state would avoid double taxation of the income received by artistes , help in proper tax sharing between source and residence state and thus achieve the objectives of Double Tax Avoidance Agreements.

Compiled and Prepared by :-

Rahil Narang

Articled Intern

Parshotam and Associates

Chartered Accountants

info@parshotamandassociates.com

Cell No: +91-9204500007