US-AU DTA: Article 17 – Entertainers
In this week’s blog we will be discussing Article 17 of the US/Australia DTA which relates to entertainers and how they are taxed from an international perspective.
In general, Article 17, provides that if a resident of one country derives income in the other country as an entertainer or sports person, some of the income earned may be protected from tax in that other country, but usually not to the same degree as other individuals who are not entertainers or sports person.
What distinguishes entertainers and sportspersons from other individuals who receive income from employment is that by the nature of their work, some entertainers and sportspersons may have the opportunity to earn a large amount of income in a very short period of time.
INTERPRETING ARTICLE 17 OF THE DTA – ENTERTAINERS
Article 17 states that income derived by visiting entertainers and sportspersons from their personal activities as such will be taxed in the country in which the activities are exercised, irrespective of the duration of the visit.
However, where the gross receipts derived by the entertainer from those activities, including expenses reimbursed to the entertainer or borne on the entertainer’s behalf, do not exceed $10,000 or its equivalent in Australian dollars in the year of income, the income will be subject to tax in accordance with Article 14 or Article 15, which deals with independent or dependent personal services, as the case may be.
It should be noted that income derived by producers, directors, technicians and others who are not artists or athletes is taxable in accordance with Article 14 or 15, accordingly. The commentary to the OECD Model Convention indicates that the word “entertainer” extends to activities which involve a political, social, religious or charitable nature, provided entertainment is present.
It does however not extend to a visiting conference speaker or to administrative or support staff. The commentary acknowledges that there may be some uncertainty about whether some persons are entertainers or not, in which case it will be necessary to consider the person’s overall activities.
Article 17(2) is a safeguarding provision to ensure that income in respect of personal activities exercised by an entertainer, whether received by the entertainer or by another person, is taxed in the country in which the entertainer performs. This is irrespective of whether or not that other person has a “permanent establishment” or “fixed base” in that country.
If it is however established that neither the entertainer nor any person related to him/her participates in any profits of that other person in any manner, the relevant income accruing to that other person shall be taxed in accordance with the provisions of Article 7, 14 or 15, dealing respectively with business profits and income from independent or dependent services, as the case may be.
A legislative instrument has removed the PAYG withholding requirement in relation to entertainers and sportspersons who are US residents when working in Australia. This only applies where the payments relate to entertainment or sports activities carried on in Australia and where the combined payments do not exceed $10,000 or its equivalent in Australian dollars in the year of income..
This legislative instrument applies from 3 April 2014 until 1 October 2024.
A US entertainer who fulfils the contractual obligations of a US employer by performing in Australia, for a salary paid by the employer, is considered to derive “income from personal activities”, within Article 17 of the US/Aus DTA. This is irrespective of the fact whether or not the entertainer is at arm’s length from the US employer. Where the entertainer is paid an annual salary, an apportionment will be necessary to determine the amount applicable to the period of time spent in Australia.
Where the contract for the personal services of a US entertainer in Australia is made between a US resident and an Australian resident, and Article 17(2) of the DTA applies, both the US resident and the entertainer may be taxable in Australia.
The US resident will be liable to tax under Article 17(2) on the taxable income derived by it, and the entertainer may be taxed under Article 17(1) on remuneration derived from the US resident in respect of the personal activities in Australia.
For any person interested in tax planning, Article 17 could be a good motivator to start exercising to ensure this Article applies to you. However, that is easier said than done.
Our team of International Tax specialists at Asena Advisors, will be able to assist you with your international tax planning needs to ensure that Article 17 is adhered to by entertainers. Lastly, we will never say no to an autograph.