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Taxation of International Performing Artistes: the problems with Article 17 OECD and how to correct them
- Publication date
- 9 February 2006
- Publisher
- This thesis is about the taxation of international performing artistes. Their
performance income is often generated in many countries other than their
country of residence, and this performance income is subject to special tax
treatment. Most countries have followed the OECD recommendation to
tax the performance income of non-resident artistes. Article 17 of the
OECD Model Tax Convention sets aside the normal allocation rules of
Article 7 (Business Profits) and Article 15 (Income from Employment).
The OECD named two reasons for this special treatment of international
artistes: (1) top stars are trying to avoid normal taxation by pretending to
live in tax havens (tax avoidance); and (2) many are not reporting their
foreign performance income in their home country (non-compliance).
With Article 17(2) the tax right for the source country has been extended to
all payments for a performance, not only when made to the artiste but also
to other entities. The OECD believes that taxation at source is a reasonable
measure to ensure that every artiste pays his share of his earnings to the
government.
At the same time, artistes also have to report their foreign earnings and
expenses in their country of residence, which will tax its residents on their
worldwide income. International double taxation is eliminated by either
exempting the foreign income in the country of residence or granting the
artiste a foreign tax credit.
This suggests that the taxation of the performance income of artistes is
balanced, even though it deviates from the normal allocation rules of
Articles 7 and 15. But unfortunately it has also increased the risk of
practical inadequacies, because the taxable base in the country of
performance can be higher than in the residence country, the exchange of
information between countries for these often short-term business
activities has not been developed properly and tax credit problems often
arise in the country of residence. And the artistes in any case end up with
comparatively high advisory costs, in the country of performance as well
as in the country of residence.