Article 17 – Artistes and Sportsmen
Prashant Bhojwani
August 2013
Why gaining importance
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Various non-Indian films such as Zero Dark 30, Slumdog Millionaire, A Mighty
Heart being shot in India
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Concerts by non-resident entertainers happening in India – Metallica, Lady
Gaga, Katy Perry etc
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Various international sporting events happening in India such as ICC World
Cup, Indian Premier League, Formula One Racing
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Article 17 – Artistes and Sportsmen
Evolution of Article 17
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Special rules for taxation of ‘artistes and sportsmen’ first appeared publicly in
1959*
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Carried over as Article 17 in 1963 OECD Model ‘to avoid the practical
difficulties’ in taxation of international performing artistes and athletes
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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
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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
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Article 17 – Artistes and Sportsmen
Evolution of Article 17
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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
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This unlimited approach was accepted by most countries, except Canada, US and
Switzerland, which made reservations
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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
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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
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Excessive double taxation was also likely to occur because of problems with
obtaining a foreign tax credit
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Article 17 – Artistes and Sportsmen
Article 17(1)
OECD Model
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Article 17(1) reads as follows:
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Non-obstante clause
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“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
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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
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Article 17 – Artistes and Sportsmen
Article 17(1) - Overview
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Article 17(1) applies to a person if:
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He is a resident of a Contracting State
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He is an entertainer or a sportsman
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He derives income as an entertainer or sportsman from personal activities
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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
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Article 17 – Artistes and Sportsmen
Article 17(1) - Overview
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Article 17(1) applies:
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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
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Irrespective of whether the entertainer performs individually or as a member of a
troupe
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Irrespective of who employs the artiste
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Irrespective of the smallness of quantum
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Irrespective of duration of the visit
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Irrespective of the timing of payment for services
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Irrespective of who pays the income
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Article 17 – Artistes and Sportsmen
Article 17(1) – Income covered*
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Income derived from performance
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Income generated from promotional activities of the entertainer during his
presence in source country
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Income connected with performance such as awards
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Advertising and sponsorship fee directly or indirectly related to performance
in source country
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Payments received upon cancellation of a performance are not taxable
under Article 17(1)
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In case of gratuitous performances, no income arises and hence, not
taxable (CBDT Circular 787 of 2000)
* illustrative
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Article 17 – Artistes and Sportsmen
Article 17(1) – Key points
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‘Entertainer’ – Meaning?
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‘Entertainer’ not defined exhaustively but illustrated to include theatre, motion
picture, radio or television artiste, or a musician
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Presence of entertainment character of significance
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An entertainer includes
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Stage performer
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Film actor
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Actor (including former sportsman) in a television commercial
Exclusions to the definition
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Cameraman
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Film producers and directors
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Choreographers
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Technical staff and road crew for a pop group
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Article 17 – Artistes and Sportsmen
Article 17(1) – Key points
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‘Sportsmen’ – Meaning?
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‘Sportsmen’ not defined exhaustively but is not restricted to participants of
traditional events such as runners, jumpers, swimmers
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Presence of entertainment character of significance
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A sportsman also includes golfers, jockeys, footballers, cricketer, tennis
players, racing drivers
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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
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Exclusions to the definition
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Former/ injured players for reporting or commentating
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Visiting conference speaker
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Administrative and support staff
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Article 17 – Artistes and Sportsmen
Article 17(1) – Key points
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Tax implications for a combined activity: (say) Tom Cruise directs and acts in
the film (or TV programme/ show)
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Predominantly performing nature? – Article 17 would apply
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Performing element negligible? – entire income out of Article 17
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In other cases – Apportionment, as necessary
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‘What are personal activities of an entertainer or sportsman as such?
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Computation mechanism
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Article 17 merely gives the right to tax (income covered under Article 17) to the
source country
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Income taxed as per the domestic tax laws of the source country
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Deductibility of the expenses or gross basis of taxation
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For income not covered under Article 17, other DTAA articles applicable
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Article 17 – Artistes and Sportsmen
Article 17(1)
Some of India’s peculiar DTAA (illustrative)
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DTAA with USA
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Exception provided where net income derived does not exceed USD 1,500
DTAA with Egypt
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Article 17 applicable only if personal activities are exercised for period(s) in
aggregate exceeding 15 days in the source country
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Article 17 – Artistes and Sportsmen
Sponsorship income
Agassi v Robinson – UK judicial precedent
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Mr Andre Agassi, a US-tax resident visited UK for short duration to play in various
tournaments and in particular at Wimbledon
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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
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Revenue authorities assessed Andre Agassi for tax in connection with the sponsorship
income received by the non-resident corporation
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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
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Article 17 – Artistes and Sportsmen
Article 17(2)
OECD Model
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Article 17(2) reads as follows:
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“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
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Article 17 – Artistes and Sportsmen
Article 17(2) – Overview
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Article 17(2) applies if:
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Income arises in respect of personal activities
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Such activities are exercised by an entertainer or a sportsman in his capacity as
such
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Income accrues to another person and not to the entertainer or sportsman himself
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Article 17 – Artistes and Sportsmen
Article 17(2) – Overview
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Paragraph 2 deals with situations where income from their activities accrues
to other persons
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‘Star companies’ covered
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Even if the star company is a tax resident of a third country
Computation mechanism
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Income taxed as per the domestic tax laws of the source country
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Article 17 – Artistes and Sportsmen
Article 17(2)
Some of India’s peculiar DTAA (illustrative)
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India-Egypt DTAA: Article 17(2) absent
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India-Zambia DTAA: Article 17(2) absent
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Article 17 – Artistes and Sportsmen
Article 17(3)
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Article 17(3) provides for an exception to the general rules of Article 17 for
performances that are substantially supported by public funds
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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
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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”
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India has Article 17(3) in most of its DTAAs
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Article 17 – Artistes and Sportsmen
Article 17(3)
Some of India’s peculiar DTAA (illustrative)
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DTAA with Bangladesh and Zambia
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DTAA with Armenia and Japan
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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
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Income taxable only in the resident state, if the event is supported by public funds
of resident state
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Article 17 – Artistes and Sportsmen
Taxability under Income-tax Act, 1961
Taxation of sportsmen/ sports association
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Section 115BBA taxes the following income of non-resident (not citizen of
India) athletes and sportsmen at 20%* on a gross basis
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Participation in any game or sport
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Advertisement
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Contribution of articles relating to any game or sport in India in newspapers,
magazines or journals
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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
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No requirement to file the return of income if:
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Income of sportsmen (or sports association/ institution) comprises only of those
mentioned above and
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Appropriate taxes are withheld at source
* Plus applicable surcharge and education cess
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Article 17 – Artistes and Sportsmen
Taxability under Income-tax Act, 1961
Taxation of artistes/ entertainers
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Income earned by a non-resident (not citizen of India) entertainer also
covered under section 115BBA (vide Union Budget 2012)
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Erstwhile provisions
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No specific provision in respect of taxability of non-resident artists and hence, the
general provisions apply
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Consideration for income arising from performance in India taxable on net basis
Withholding tax
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Section 194E provides for withholding tax on income referred to in section
115BBA
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Section 195 applicable in other cases
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CBDT Circular 787 dated 10 February 2000 providing guidelines for taxation
of income of artists, entertainers, sportsmen, etc from international/ national/
local events
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Article 17 – Artistes and Sportsmen
Case Study – Triangular case
State T
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An entertainer (‘B’) is a resident of
State R
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B is employed by Company (‘A Co’)
situated in State T
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A Co supplies services of B for an
event in State S
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Taxability?
A Co
Employs
60
Salary
State R
B
100
Payment
for
services
State S
Event
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Article 17 – Artistes and Sportsmen
2010 OECD draft discussion on Article 17
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The Committee on Fiscal Affairs* has examined several questions related to
the application of Article 17 which were included in the draft discussion paper
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Draft discussion clarifies following aspects
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Who is an entertainer or sportsman?
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Applicability of Article 17 to prize money obtained by the owner of a horse or a race
car?
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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”
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Practical issue relating to remuneration relating to preparation and training
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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
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Article 17 – Artistes and Sportsmen
2010 OECD draft discussion on Article 17
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Source and allocation rules when entertainment activities are performed in various
countries
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Applicability of Article 17 to the following:
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prizes and awards paid by a national federation, association or league for a
particular event
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payments made to an entertainment company or sports organisation in relation
with broadcasting rights or merchandising
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payments for broadcasting rights made to clubs by leagues or federations
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payments for the use of, or to right to use, image rights of entertainers and
sportsmen
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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
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Article 17 – Artistes and Sportsmen
Thank You