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Transcript of Molenaar 19112010 - Article .Dr. Dick Molenaar All Arts Tax Advisers ... in official text of Article

  • Artistes and Sportsmen -

    Recent developments

    around Article 17

    Mumbai Mumbai 4 December 20104 December 2010

    Dr. Dick Dr. Dick MolenaarMolenaar

    All Arts Tax AdvisersAll Arts Tax Advisers

    Research Fellow Research Fellow -- ErasmusErasmus University University

    Rotterdam, the NetherlandsRotterdam, the Netherlands

  • 2

    SPECIAL RULES ARTISTS/SPORTSMEN

    National: withholding tax on performance National: withholding tax on performance

    incomeincome

    International International tax treaties:tax treaties:

    First in 1939 tax treaty USA First in 1939 tax treaty USA SwedenSweden

    Later in German tax treaties in 1950sLater in German tax treaties in 1950s

    1963 OECD Model: Art. 171963 OECD Model: Art. 17

    because of practical difficultiesbecause of practical difficulties

  • 3

    PERFORMANCE INCOME

    Art. 17 OECD Model Art. 17 OECD Model -- ArtistesArtistes and and SportsmenSportsmen: : TaxingTaxing right right forfor the the sourcesource country, country, overrulingoverrulingotherother treatytreaty provisionsprovisions (7, 14 (7, 14 andand 15)15)

    MeasureMeasure to counteract:to counteract:

    taxtax avoidanceavoidance

    nonnon--compliancecompliance

    Art. 23 Art. 23 -- TaxTax exemptionexemption or credit in the or credit in the residenceresidence countrycountry

  • 4

    ARTICLE 17(2)

    Introduction in 1977Introduction in 1977

    Also payments to others than the artiste or Also payments to others than the artiste or

    sportsmen fall under Art. 17sportsmen fall under Art. 17

    But limited approach, i.e. only in abusive But limited approach, i.e. only in abusive

    situationssituations

    Extended to the unlimited approach in 1992, Extended to the unlimited approach in 1992,

    after the 1987 OECD Reportafter the 1987 OECD Report

    But USA, Switzerland and Canada: reservationBut USA, Switzerland and Canada: reservation

  • 5

    1987 OECD REPORT

  • 6

    1987 OECD REPORT

    ClearClear expressionexpression of mistrustof mistrust (( 7 and 8):7 and 8):clear evidence of nonclear evidence of non--compliancecompliance

    rarely disclose casual earningsrarely disclose casual earnings

    sophisticated tax avoidance schemes, many involving sophisticated tax avoidance schemes, many involving the use of tax havens, are frequently employed by the use of tax havens, are frequently employed by toptop--ranking artistes and athletesranking artistes and athletes

    relatively unsophisticated people relatively unsophisticated people in the business in the business sense sense can be precipitated into great richescan be precipitated into great riches

    travel, entertainment and various forms of ostentation travel, entertainment and various forms of ostentation are inherent in the business and there is a tendency are inherent in the business and there is a tendency to be represented by adventurous but not very good to be represented by adventurous but not very good accountantsaccountants

  • 7

    EXAMPLES

    Sting Sting Canada / USA / NetherlandsCanada / USA / Netherlands

    Johansson Johansson Switzerland / USASwitzerland / USA

    LucianoLuciano Pavarotti Pavarotti MonacoMonaco

    Steffi Graf Steffi Graf -- MonacoMonaco

    Boris Becker Boris Becker MonacoMonaco

    Mario Mario CipolliniCipollini MonacoMonaco

    Valentino Rossi Valentino Rossi UK (nonUK (non--domiciled status)domiciled status)

  • 8

    NO DEDUCTION OF EXPENSES

    94 of the 1987 OECD Report94 of the 1987 OECD Report

    (( 10 of the Commentary on Art. 17 OECD)10 of the Commentary on Art. 17 OECD)

    The article says nothing about how the income concerned The article says nothing about how the income concerned

    is to be computed. It is for a Contracting Stateis to be computed. It is for a Contracting States s

    domestic law to determine the extent of any deductions domestic law to determine the extent of any deductions

    for expenses. Domestic laws differ in this area, and for expenses. Domestic laws differ in this area, and

    some provide for taxation at source at an appropriate some provide for taxation at source at an appropriate

    rate based on the gross amount paid to artistes and rate based on the gross amount paid to artistes and

    athletes. Such rules may also apply to income paid to athletes. Such rules may also apply to income paid to

    groups or incorporated teams, troupes, etc.groups or incorporated teams, troupes, etc.

  • 9

    PROBLEM OF EXCESSIVE TAXATION

    InsufficientInsufficient taxtax credit in credit in residenceresidence country, country,

    becausebecause of high of high withholdingwithholding taxtax

    ExampleExample: 2.000 : 2.000 grossgross 1.200 1.200 expensesexpenses = 800 = 800

    profitprofit

    WithholdingWithholding taxtax:: 20% x 2.000 = 20% x 2.000 = -- 400400

    TaxTax credit: credit: 30% x 800 = 24030% x 800 = 240

    InsufficientInsufficient taxtax credit = credit = -- 160160

  • 10

    PROBLEMS WITH TAX CREDITS

    It is often problematic to achieve a tax credit in It is often problematic to achieve a tax credit in

    the country of residence. Examples are:the country of residence. Examples are:

    No tax certificate availableNo tax certificate available

    Name of group, but credit in name of artistsName of group, but credit in name of artists

    Conflict with monthly salary administrationConflict with monthly salary administration

    No acceptance by local tax inspectorNo acceptance by local tax inspector

  • 11

  • 12

    EUROPEAN UNION

    No direct influence on artiste and sportsman No direct influence on artiste and sportsman taxation, but indirect through EC Treatytaxation, but indirect through EC Treaty

    ArnoudArnoud Gerritse: ECJ 12 June 2003, CGerritse: ECJ 12 June 2003, C--234/01234/01

    FKP Scorpio FKP Scorpio KonzertproduktionenKonzertproduktionen GmbH: ECJ GmbH: ECJ 3 October 2006, C3 October 2006, C--290/04290/04

    Deduction of expensesDeduction of expenses

    Normal tax ratesNormal tax rates

    Withholding tax?Withholding tax?

  • 13

    2008 CHANGE IN OECD MODEL

    Option for deduction of expenses in Option for deduction of expenses in 10 of 10 of

    the Commentary on Article 17the Commentary on Article 17

    End of gross taxation ?End of gross taxation ?

    New examples: Germany, Austria, Spain, New examples: Germany, Austria, Spain,

    Belgium, SwedenBelgium, Sweden

    Existing examples: UK, USA, Australia, Existing examples: UK, USA, Australia,

    NetherlandsNetherlands

  • 14

    BROADENING THE SCOPE

    Territoriality principle: Territoriality principle: AgassiAgassi casecase

    United KingdomUnited Kingdom

    House of Lords, 17 May 2006, [2006] UKHL 23House of Lords, 17 May 2006, [2006] UKHL 23

    Also equivalent part of sponsoring and Also equivalent part of sponsoring and endorsement income be allocated to country endorsement income be allocated to country of performanceof performance

    But tax credit in country of residence?But tax credit in country of residence?

    Or resident in tax haven?Or resident in tax haven?

  • 15

    ARTICLE 17(3)

    Optional exemption for subsidized artistes and Optional exemption for subsidized artistes and sportsmensportsmen

    14 of Commentary on Art. 1714 of Commentary on Art. 17

    Very often used in bilateral tax treatiesVery often used in bilateral tax treaties

    India in 97% of its bilateral tax treatiesIndia in 97% of its bilateral tax treaties

    Why? Is the state defending its budget?Why? Is the state defending its budget?

    Unequal treatment towards nonUnequal treatment towards non--subsidized?subsidized?

  • 16

    THE NETHERLANDS - 2007

    The government had decided not to tax nonThe government had decided not to tax non--

    resident artistes and sportsmen from treaty resident artistes and sportsmen from treaty

    countries anymorecountries anymore

    Although the NL has the taxing right under Although the NL has the taxing right under

    Art. 17 of its tax treatiesArt. 17 of its tax treaties

    But tax revenue was too low and But tax revenue was too low and

    administrative expense were too highadministrative expense were too high

    Return to normal taxing rights of Art. 7 and 15Return to normal taxing rights of Art. 7 and 15

  • 17

    OLYMPICS / UEFA

    Also exemptions from source tax for:Also exemptions from source tax for:

    2010 Winter Olympics 2010 Winter Olympics Vancouver (Canada)Vancouver (Canada)

    2011 Champions League Final 2011 Champions League Final London (UK)London (UK)

    2012 Summer Olympics 2012 Summer Olympics London (UK)London (UK)

    Tax literature:Tax literature:

    1999 1999 -- Dr. Dr. HaraldHarald Grams Grams GermanyGermany

    2001 2001 -- Joel Joel NitikmanNitikman CanadaCanada

    2006 2006 Dr. Dick Dr. Dick MolenaarMolenaar

  • 18

    DISCUSSION VIENNA NOV 2007

    Daniel Sandler Daniel Sandler Canada:Canada:

    Article 17 is both underArticle 17 is both under-- and and overinclusiveoverinclusive

    (+) Former politicians as speakers / models / (+) Former politicians as speakers / models / caddies of golf players/ film directorscaddies of golf players/ film directors

    ((--) Lower income too many obstacles) Lower income too many obstacles

    Broaden to all Broaden to all celebritiescelebrities, but set limit at , but set limit at $100,000 p.p. per year$100,000 p.p. per year

    Dick Dick MolenaarMolenaar The Netherlan