Transcript Document
Article 17 – Artistes and Sportsmen Prashant Bhojwani August 2013 Why gaining importance ► Various non-Indian films such as Zero Dark 30, Slumdog Millionaire, A Mighty Heart being shot in India ► Concerts by non-resident entertainers happening in India – Metallica, Lady Gaga, Katy Perry etc ► Various international sporting events happening in India such as ICC World Cup, Indian Premier League, Formula One Racing Page 2 Article 17 – Artistes and Sportsmen Evolution of Article 17 ► Special rules for taxation of ‘artistes and sportsmen’ first appeared publicly in 1959* ► Carried over as Article 17 in 1963 OECD Model ‘to avoid the practical difficulties’ in taxation of international performing artistes and athletes ► Article 17(2) added in 1977 to tax in source country, remuneration earned by another person (not the artiste or sportsman himself) for performance of artistes/ sportsmen ► This was meant to counteract tax avoidance schemes using ‘‘loan-out’’ or ‘‘star’’ companies, normally registered in low tax jurisdictions * In the second report prepared by OEEC Page 3 Article 17 – Artistes and Sportsmen Evolution of Article 17 ► ► More concerns were brought forward in 1987 OECD Report recommending the scope of Article 17(2) to be extended to all legal entities receiving fees for artistic and sports performances merely through a change in interpretation of existing provision ► This unlimited approach was accepted by most countries, except Canada, US and Switzerland, which made reservations ► This change duly occurred in the next version of OECD Model (1992) 1987 Report also allowed countries to tax gross performance income without the deduction of expenses, but only at a low tax rate ► Non-deductibility of expenses could lead to excessive taxation since income taxed in source country (ie country of performance) is much higher than that in residence country ► Excessive double taxation was also likely to occur because of problems with obtaining a foreign tax credit Page 4 Article 17 – Artistes and Sportsmen Article 17(1) OECD Model ► Article 17(1) reads as follows: ► ► Non-obstante clause ► ► “Notwithstanding the provisions of Article 7 and 15, 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 as a sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State” Exception to normal provision contained in Article 7 (business income) and Article 15 (dependent personal services) No major difference between OECD Model and UN Model Page 5 Article 17 – Artistes and Sportsmen Comparison of Tax Models OECD Model Entertainer and Sportsman UN Model Entertainer and Sportsperson US Model Entertainer and Sportsman, if exceeds limit* * Gross receipts including expenses reimbursed to him or borne on his behalf is or exceeds USD 20,000 or its equivalent Page 6 Article 17 – Artistes and Sportsmen Article 17(1) - Overview ► ► Article 17(1) applies to a person if: ► He is a resident of a Contracting State ► He is an entertainer or a sportsman ► He derives income as an entertainer or sportsman from personal activities ► Such personal activities are exercised in the other Contracting State If all the above conditions are satisfied, income derived through such activities ‘may be taxed’ in the source country Page 7 Article 17 – Artistes and Sportsmen Article 17(1) - Overview ► Article 17(1) applies: ► To an entertainer or sportsman who performs services on his own behalf or on behalf of another person, either as an employee or in any other manner ► Irrespective of whether the entertainer performs individually or as a member of a troupe ► Irrespective of who employs the artiste ► Irrespective of the smallness of quantum ► Irrespective of duration of the visit ► Irrespective of the timing of payment for services ► Irrespective of who pays the income Page 8 Article 17 – Artistes and Sportsmen Article 17(1) – Income covered* ► Income derived from performance ► Income generated from promotional activities of the entertainer during his presence in source country ► Income connected with performance such as awards ► Advertising and sponsorship fee directly or indirectly related to performance in source country ► Payments received upon cancellation of a performance are not taxable under Article 17(1) ► In case of gratuitous performances, no income arises and hence, not taxable (CBDT Circular 787 of 2000) * illustrative Page 9 Article 17 – Artistes and Sportsmen Article 17(1) – Key points ► ‘Entertainer’ – Meaning? ► ‘Entertainer’ not defined exhaustively but illustrated to include theatre, motion picture, radio or television artiste, or a musician ► Presence of entertainment character of significance ► An entertainer includes ► ► Stage performer ► Film actor ► Actor (including former sportsman) in a television commercial Exclusions to the definition ► Cameraman ► Film producers and directors ► Choreographers ► Technical staff and road crew for a pop group Page 10 Article 17 – Artistes and Sportsmen Article 17(1) – Key points ► ‘Sportsmen’ – Meaning? ► ‘Sportsmen’ not defined exhaustively but is not restricted to participants of traditional events such as runners, jumpers, swimmers ► Presence of entertainment character of significance ► A sportsman also includes golfers, jockeys, footballers, cricketer, tennis players, racing drivers ► This Article also applies to income from other activities which are usually regarded as of an entertainment character, such as billiards, snooker, chess and bridge ► Exclusions to the definition ► Former/ injured players for reporting or commentating ► Visiting conference speaker ► Administrative and support staff Page 11 Article 17 – Artistes and Sportsmen Article 17(1) – Key points ► Tax implications for a combined activity: (say) Tom Cruise directs and acts in the film (or TV programme/ show) ► Predominantly performing nature? – Article 17 would apply ► Performing element negligible? – entire income out of Article 17 ► In other cases – Apportionment, as necessary ► ‘What are personal activities of an entertainer or sportsman as such? ► Computation mechanism ► Article 17 merely gives the right to tax (income covered under Article 17) to the source country ► Income taxed as per the domestic tax laws of the source country ► Deductibility of the expenses or gross basis of taxation ► For income not covered under Article 17, other DTAA articles applicable Page 12 Article 17 – Artistes and Sportsmen Article 17(1) Some of India’s peculiar DTAA (illustrative) ► DTAA with USA ► ► Exception provided where net income derived does not exceed USD 1,500 DTAA with Egypt ► Article 17 applicable only if personal activities are exercised for period(s) in aggregate exceeding 15 days in the source country Page 13 Article 17 – Artistes and Sportsmen Sponsorship income Agassi v Robinson – UK judicial precedent ► Mr Andre Agassi, a US-tax resident visited UK for short duration to play in various tournaments and in particular at Wimbledon ► He controlled a US corporation (Andre Agassi Enterprises Inc) through which he negotiated endorsement contracts with manufacturers of sporting equipment including Nike and Head, neither of which has a tax presence in UK ► Revenue authorities assessed Andre Agassi for tax in connection with the sponsorship income received by the non-resident corporation ► UK House of Lords upheld the extra-territorial applicability of the UK domestic tax law provisions and held that endorsement income paid by non-resident UK sponsors to nonresident corporation is liable to tax in UK Page 14 Article 17 – Artistes and Sportsmen Article 17(2) OECD Model ► Article 17(2) reads as follows: ► ► “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.” No major difference between OECD Model and UN Model Page 15 Article 17 – Artistes and Sportsmen Article 17(2) – Overview ► Article 17(2) applies if: ► Income arises in respect of personal activities ► Such activities are exercised by an entertainer or a sportsman in his capacity as such ► Income accrues to another person and not to the entertainer or sportsman himself Page 16 Article 17 – Artistes and Sportsmen Article 17(2) – Overview ► Paragraph 2 deals with situations where income from their activities accrues to other persons ► ‘Star companies’ covered ► ► Even if the star company is a tax resident of a third country Computation mechanism ► Income taxed as per the domestic tax laws of the source country Page 17 Article 17 – Artistes and Sportsmen Article 17(2) Some of India’s peculiar DTAA (illustrative) ► India-Egypt DTAA: Article 17(2) absent ► India-Zambia DTAA: Article 17(2) absent Page 18 Article 17 – Artistes and Sportsmen Article 17(3) ► Article 17(3) provides for an exception to the general rules of Article 17 for performances that are substantially supported by public funds ► This was first recognised in 1977 wherein the Commentary on Article 17 mentioned that cultural exchanges and subsidized artistes and sportsmen could suffer from the far-reaching impact ► ► OECD Commentary of 1977 also gave an option to exclude these artistes and sportsmen from Article 17 1992 OECD Commentary on Article 17 extended this exception and provided a draft as follows: “The provisions of paragraph 1 and 2 shall not apply to income derived from activities performed in a Contracting State by artistes or sportsmen if the visit to that State is wholly or mainly supported by public funds of one or both of the Contracting States or political subdivisions or local authorities thereof. In such a case, the income is taxable only in the Contracting State in which the artiste or the sportsman is a resident” ► India has Article 17(3) in most of its DTAAs Page 19 Article 17 – Artistes and Sportsmen Article 17(3) Some of India’s peculiar DTAA (illustrative) ► DTAA with Bangladesh and Zambia ► ► DTAA with Armenia and Japan ► ► An enterprise shall be deemed to have a permanent establishment in other Contracting State if it carries on a business which consists of providing the services of public entertainers except in case where the income if received from services provided for approved cultural or sports exchange program or for supporting the public funds Income taxable only in the resident state, if the event is for approved cultural or sports exchange program DTAA with Australia, Belgium and Mauritius ► Income taxable only in the resident state, if the event is supported by public funds of resident state Page 20 Article 17 – Artistes and Sportsmen Taxability under Income-tax Act, 1961 Taxation of sportsmen/ sports association ► Section 115BBA taxes the following income of non-resident (not citizen of India) athletes and sportsmen at 20%* on a gross basis ► Participation in any game or sport ► Advertisement ► Contribution of articles relating to any game or sport in India in newspapers, magazines or journals ► Section 115BBA also taxes the amount guaranteed to non-resident sports association or institution in relation to any game in India at 20%* on gross basis ► No requirement to file the return of income if: ► Income of sportsmen (or sports association/ institution) comprises only of those mentioned above and ► Appropriate taxes are withheld at source * Plus applicable surcharge and education cess Page 21 Article 17 – Artistes and Sportsmen Taxability under Income-tax Act, 1961 Taxation of artistes/ entertainers ► Income earned by a non-resident (not citizen of India) entertainer also covered under section 115BBA (vide Union Budget 2012) ► Erstwhile provisions ► No specific provision in respect of taxability of non-resident artists and hence, the general provisions apply ► Consideration for income arising from performance in India taxable on net basis Withholding tax ► Section 194E provides for withholding tax on income referred to in section 115BBA ► Section 195 applicable in other cases ► CBDT Circular 787 dated 10 February 2000 providing guidelines for taxation of income of artists, entertainers, sportsmen, etc from international/ national/ local events Page 22 Article 17 – Artistes and Sportsmen Case Study – Triangular case State T ► An entertainer (‘B’) is a resident of State R ► B is employed by Company (‘A Co’) situated in State T ► A Co supplies services of B for an event in State S ► Taxability? A Co Employs 60 Salary State R B 100 Payment for services State S Event Page 23 Article 17 – Artistes and Sportsmen 2010 OECD draft discussion on Article 17 ► The Committee on Fiscal Affairs* has examined several questions related to the application of Article 17 which were included in the draft discussion paper ► Draft discussion clarifies following aspects ► Who is an entertainer or sportsman? ► Applicability of Article 17 to prize money obtained by the owner of a horse or a race car? ► Circumstances in which income derived by an entertainer or sportsman (or person referred in paragraph 2) can be said not to be related to the personal activities of the entertainer or sportsman “as such” ► Practical issue relating to remuneration relating to preparation and training ► Applicability of Article 17 to activities of promoters, models as well as public speakers * Through subgroup of its Working Party 1 on Tax Conventions and Related Questions Page 24 Article 17 – Artistes and Sportsmen 2010 OECD draft discussion on Article 17 ► Source and allocation rules when entertainment activities are performed in various countries ► Applicability of Article 17 to the following: ► prizes and awards paid by a national federation, association or league for a particular event ► payments made to an entertainment company or sports organisation in relation with broadcasting rights or merchandising ► payments for broadcasting rights made to clubs by leagues or federations ► payments for the use of, or to right to use, image rights of entertainers and sportsmen Page 25 Article 17 – Artistes and Sportsmen Glossary CBDT Central Board of Direct Taxes DTAA Double Taxation Avoidance Agreement OECD The Organisation for Economic Co-Operation and Development OEEC The Organisation for European Economic Cooperation UN The United Nations US The United States of America Page 26 Article 17 – Artistes and Sportsmen Thank You