handbook-tb

Brian J. Arnoldemployment services performed in a source country and must be balancedagainst the amount of pension income received by residentsof the source country from prior employment services performed inanother country. Pensions do not appear to involve any serious baseerosion or tax avoidance issues.4.6 Entertainment and athletic servicesSome entertainers and athletes can make large sums of money in ashort period. They may be self-employed independent contractors,employees of an entity such as a team, orchestra or other enterprise, oremployees of an entity that they control or are associated with. BecauseArticle 17 of the United Nations Model Convention applies to bothemployees, independent contractors and enterprises, income derived bynon-residents from entertainment and athletic activities are discussedseparately from employment income and business profits from services.Developing countries that wish to tax income derived by nonresidententertainers and athletes must ensure that the provisions oftheir domestic law and tax treaties allow them to tax such incomeirrespective of the legal structure of the arrangements. It is generallyaccepted that a country in which entertainment and athletic activitiesare performed has the first right to tax such income. This right to taxis justified by practical considerations rather than concern about theprotection of the tax base. Often the source of the income is generatedfrom ticket sales to consumers, which will not be deductible in computingthe source country’s tax base. Nevertheless, the source countrysupplies the market for the entertainment or athletic event and theincome-earning activities are performed there.Despite the general acknowledgement that the country in whichentertainment and sports activities take place has the first right to taxthe income from such activities, developing countries face serious challengesto tax such income effectively. First, domestic law must imposetax on income derived by non-resident entertainers and athletes fromactivities performed in the country irrespective of how long the activitiescontinue. For this purpose, the source country tax is generallyimposed on the gross amount paid to the non-resident entertainer orathlete and collected by way of a withholding obligation imposed on82