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News regarding taxation of rock bands in Spain

Spain
19 Aug 2015
Taxand Spain investigates the differences in a recent decision made by the Spanish Directorate-General of Taxes (DGT) and the earlier Supreme Court ruling over the taxation of concerts and entertainment services of a rock band.

The Spanish Directorate-General of Taxes (“DGT”) has recently decided on a case very similar to that decided by the Spanish Supreme Court in 2012. However, the conclusions reached by the DGT differ from those reached by the Supreme Court.

In that judgment, the Supreme Court debated whether the income obtained by non-resident entities for services provided in relation to the production of concerts offered by the band U2 in Spain in 1997, other than pure entertainment services, should be considered taxable in Spain in accordance with article 17.2 of the Spain-Ireland tax treaty and the Revised Non-Resident Income Tax Law, They concluded that all of the income obtained from the music tour, including that relating to production services, was taxable in Spain.

In the ruling we are examining, the DGT analysed a case, in which a US-resident entity had been hired to provide production services for a concert to be given in Spain by a US band. None of the band’s members had any type of legal or financial relationship with the entity hired to produce the concert.

The entity organising the concert in Spain was to make two types of payments: 

  1. Known as an “artist fee” to remunerate the entertainers’ services, and payable to a US entity owned by them, and 
  2. Another known as a “production fee” to remunerate the concert production services, and payable to a US entity, not established in Spain and not having any relationship with the entertainers

The production services were to include, personnel costs; the costs associated with rehearsal facilities, rigging, stage rental and assembly, sound projection, pyrotechnics, transportation, loading, hotels, promotion and advertising, liability and medical insurance and accounting and audit fees.

The DGT concluded in its ruling that “the income paid to the requesting entity (the producer) is not deemed obtained in Spain, in accordance with the provisions of (the) Spain-US tax treaty and the interpretation of the Commentary on the OECD Model Convention, rendering it exempt in Spain.” 

The wording of the specific rule contained in the Spain-US tax treaty makes it clear that in the case submitted for a ruling, insofar as the entity that produced the concert had no legal or financial relationship with the entertainers, any income that might be received from holding the concert should not be deemed subsumed under article 19 of the treaty, but rather under “Business Profits”, rendering it tax exempt in Spain.

In short, given that in the case analysed the requesting entity was hired to provide concert production services in Spain, bearing no relation to the activities of the entertainers performing in the concert, the DGT concluded that the income paid to the producer was not considered to be obtained in Spain, in accordance with the Spain-US tax treaty and the interpretation of the OECD Model Convention, rendering it exempt in Spain.

This conclusion is fully consistent with the latest changes made to the Commentary on article 17.2 of the OECD Model Convention, which, in section 4 of paragraph 11, expressly states that article 17.2 does not cover the income of all enterprises that are involved in the production of entertainment or sports events.


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

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Taxand's Take

Since the critera contained in the ruling differs from the one stated in the resolution of the Spanish Supreme Court on the U2 case, in which non-resident entities had obtained income in Spain for services provided in relation to the production of concerts other than pure entertainment services, suffering a withholding - a tax claw back should be carefully considered.

 

Taxand's Take Author

Felix Plaza
Spain

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