Further to the publication of the discussion draft on the application of Article 17 (Artistes and Sportsmen), Taxand is honoured to provide its comments.

Commentators to date have mainly taken issue with two aspects of Article 17. Firstly, the allocation of taxing authority to the country where entertainers or sportsmen perform their activities, which is at odds with the normal allocation rules in Articles 7 and 15 of the OECD Model Tax Convention. The problem arises from the fact that domestic law of the country of residence may or may not provide for adequate tax credits to offset the foreign tax liability of an entertainer and, therefore, excessive taxation may result. Secondly, Article 17 may create source tax liability where domestic law does not contain an equivalent provision or regime and over income that could have not been generated at all in the country were the activity is carried out. This is fundamentally at odds with the principle that tax treaties should be restricting domestic taxing authority and not enhancing it.

Taxand's Take
The general thrust of the proposed changes to the Commentary to Article 17 (the “Draft Changes”) is to clarify existing paragraphs of the Commentary and concepts contained in Article 17 rather than address the two concerns set out above. However, it is respectfully submitted that, at the very least, the recommendations (i) to include a domestic source tax for performance income and (ii) to include a source tax (taxation in the place where the payer is located) for performance income within Article 17.1 in the case of artistes or sportspeople who are employees should be considered as an addition to the Draft Changes to align Article 17 with the fundamental tenets of the OECD Model Tax Convention. In the first case, it will still remain up to the individual countries on whether they will follow the recommendation.

Read Taxand's full response on the discussion draft on the application of Article 17 (Artistes and Sportsmen) of the OECD Model Tax Convention issued on 23 April 2010

Your Taxand contacts for further queries are:
TAXAND SPAIN
Félix Plaza Romero
T. +34 91 514 52 00
E. felix.plaza.romero@garrigues.com

Álvaro de la Cueva
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E. alvaro.de.la.cueva@garrigues.com 

TAXAND CANADA
Helena Plecko
E. helena.plecko@gowlings.com

TAXAND CYPRUS
Sophie Stylianou
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TAXAND THAILAND
Chinapat Visuttipat
E. chinapat.vs@hnpcounsel.com