International taxation of entertainers and sportspersons: new Commentary on the OECD Model Convention
The taxation of entertainers and sportspersons is a complex area since the tax regime applicable to it differs from that applicable to revenues obtained from other kinds of activities.
Article 17 of the OECD’s Model Tax Convention (OECD-MTC) aims to clarify the situation by making it possible for such income to be taxed in the State in which the activity in question took place. It also includes, in its second paragraph, an anti-avoidance clause which stipulates that revenues generated by entertainers and sportspersons can be attributed to them even if they have been received by a company.
Doubts often arise, however, as to how the rules should be interpreted, it being the States themselves which have to resolve any issues arising, and they do not always do so using the same criteria.
Last July, the OECD’s Committee on Fiscal Affairs published the amendments to the Commentary on Article 17 of the OECD-MTC, following analysis of the observations made by various organizations— including our own Sports and Entertainment specialists (through our international Taxand network)—with a view to defining and clarifying certain issues which are fundamental to the analysis of the taxation of revenues obtained by entertainers and sportspersons in the various countries in which they pursue their activities.
The most relevant of these issues are outlined below:
1. New instances included within the concept of entertainer or sportsperson
- Any person acting as an entertainer or sportsperson is included, even if they do so on a one-off or non-professional basis only, as in the case of an amateur sportsperson or a person who takes part in a film or television production without actually being an actor.
- Complementary activities pursued by entertainers or sportspersons, such as interviews or advertising activities relating to the event, are included.
- Injured or retired sportspersons who act as commentators without participating in the sporting event are not regarded as entertainers or sportspersons.
2. Actions falling within the scope of the entertainer’s or sportsperson’s activities which are taxable in the State in which the activities take place.
- Models and speakers. Article 17 does not apply to the activities of models and speakers, which are therefore not taxable in the State in which they are carried on. For example, a former politician who receives a fee for a speaking engagement is not included since there is no performance element in his/her activity.
- The activities of producers and promoters (such as sales of concert tickets, advertising space, etc.) do not fall within the scope of article 17.
- Preparation and training forming part of the entertainer’s or sportsperson’s personal activities are included, meaning that the part of their remuneration which corresponds to performances, rehearsals and training, and to time spent travelling in the State in question, is taxable.
3. Sourcing rules for determining the location of activities pursued in various countries owing to the mobility of entertainers and sportspersons.
- Any item of income related to the specific activities performed by the entertainer or sportsperson in a particular State is to be taken into account. Tax may be levied on a prize received, on remuneration for taking part in a tournament or training, or on remuneration paid to a musician for a concert.
- When the remuneration is received by an entertainer or sportsperson who forms part of a team or orchestra and covers various activities performed over a period of time (e.g. an annual salary which includes activities such as training, rehearsals, travelling with the team, etc.), the remuneration may be allocated based on the number of working days spent in each State (as in the case of a cyclist who trains and competes with his/her team in various different countries).
4. Special categories of payments
- Prizes paid to sportspersons by national federations, associations or leagues for sporting events held in a particular State are taxable in that State, regardless of who the income is paid by.
- Merchandising, sponsorship and advertising payments
- If there exists a close connection with the entertainer’s or sportsperson’s activities as such, these payments are taxable in the State in which he/she pursues a specific activity (e.g. payments made to a tennis player for wearing during a match a tennis shirt bearing a particular logo or trade mark).
- Merchandising payments deriving from sales made in a country which are not closely linked to an activity of the entertainer or sportsperson in that country and cannot be classed as royalties are taxable in accordance with article 7 (business profits) or article 15 (in the case of employees).
- Broadcasting payments made directly to an entertainer or sportsperson (or to a company belonging to him/her) for the broadcasting of their performance are taxable in the State in which the performance takes place. However, where the payment is made to a third party and the sportsperson or entertainer does not benefit from it, article 17 is not applicable.
- Payments in respect of image rights which are not closely connected to the sportsperson’s or entertainer’s activities as such in a specific State are not taxable in that State.
5. Other amendments to the commentary on article 17 of the OCDE-MTC.
- Paragraph two of article 17 does not apply to income obtained by the owner of a race horse or racing car, unless the payment is received in the name of the jockey or driver in respect of his/her personal activity as such.
- The inclusion in double tax treaties of a de minimis rule is envisaged for states wishing to adopt this measure. Under this rule, article 17 would not be applicable to income below a certain threshold which is defined in the Commentary itself.
Garrigues Sports & Entertainment Department