handbook-tb

Taxation of income from servicesthe promoter of the event. Some countries may allow the non-residentto file a return and pay tax on the net income; however, this requires acommitment of administrative resources to assess returns and makerefunds of excessive tax paid if appropriate. Countries should givecareful consideration to the type of entertainment and athletic activitiesthat are subject to tax; for example, it may be appropriate to exemptentertainment and athletic activities of a cultural nature or activitiesthat do not generate much income. Countries should also carefullyconsider the rate of withholding tax, especially if a final withholdingtax is used. Second, they should have an information-gathering mechanismto identify when and where entertainment and sporting eventsare taking place in their country. Third, they should have an effectivetax collection mechanism to enforce the tax liability on non-residententertainers and athletes.Countries should also have provisions in place to deal withtechniques used by non-resident entertainers and athletes to avoidsource country tax. Common avoidance schemes in this regard involvethe assignment of income by a non-resident entertainer or athlete toanother person, usually related to the taxpayer, or the use of an entityof which the non-resident entertainer or athlete is a shareholder andemployee. An example of the latter scheme might operate as follows:‣ ¾ The entertainer or athlete owns all or a majority of the shares ofa corporation that enters into contractual arrangements withthe promoter of an event;‣ ¾ The contractual arrangements require the corporation to providethe services of the entertainer or athlete;‣ ¾ The entertainer or athlete has an employment contract withthe corporation under which the employee’s salary is modest, asmall percentage of the total gross revenue derived by the corporationfrom the event.In the absence of special domestic rules, the tax consequencesof such an arrangement would be that the salary derived by the nonresidententertainer or athlete would be subject to source countrytax because the employment is exercised in the source country. Ifthe source country has entered into tax treaties based on the UnitedNations or the OECD Model Convention, Article 17 of those treaties83