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There are only two things that are certain in this world: death and taxes, as said by Benjamin Franklin. And for globetrotting bands, this is no exception, as they have to file taxes each year in the country where they reside like everyone else. However, when a specific rule in international law about artist performances kicks in, problems might arise and an artist could end up paying way more tax than expected.
International law is not like the law in your country. There’s no supranational entity that makes the law for all countries (with the exception of the European Union). Looking at tax matters, there are two organizations that provide a framework for bilateral treaties: the OECD and the United Nations. In a tax treaty, taxing rights to various economic activities are distributed between the two countries participating in the treaty. So where is the artist in all this?
If a band performs in their own country, nothing out of the ordinary happens. But when they cross a border and perform in another country, international law kicks in. In a lot of cases, the home country of the band and the country of performance have made a tax treaty which follows the OECD Model Tax Convention. In this framework, a special rule is made about artists and sportsmen (Article 17 OECD). This rule stipulates that an artist must pay taxes in the country in which he or she performs – there’s no escaping it – and the “normal” rules for personal income or business income are defunct.
So, now we know how and why artists should be careful when performing abroad. It sounds fair, though: artists are taxed in the country in which they perform. However, as simple and clean as this solution might sound, implementing it leads to many practical problems.
The biggest hurdle is the fact that the country you reside in doesn’t give up its taxing right so easily – it wants to know for sure you paid your taxes in the other country (where you performed). On the other hand, the country of your gig will want to ensure its taxing right to the fullest – it will often pose a gross tax on your performance. You must pay a certain percentage of your fee to that country. To avoid paying another tax on your gig back at home, you will need to have good documentation about the tax you paid.
However, this only scrapes the surface about the tax problems you might face when you travel abroad. For example, what about gig-related expenses like hotel costs and stage effects? Can they be deducted from the overseas tax? Short answer – not always! Each tax treaty between two countries is different, and tax authorities in each country might all have a different view on your performance. Also, in some European countries, European Union laws kick in, adding another dimension of complexity.
Here are some tips to help you out:
- Have your business properly set up in your home country and file your taxes each year. Get some help from your manager or your tax advisor. Don’t think you can work under the radar, because hefty fees might emerge if a tax authority finds out you've been underreporting your income. You always want to be on the good side of the tax guys!
- When you go abroad, keep track of each expense you incur, including hotel costs, flight costs, and more. These documents help determine the taxable income. Don’t settle for copies – the original invoices are what you need.
- Ask your promoters about taxation, and how they handle it their countries. Ask if there have been problems about taxation before. The promoter is legally responsible for any withholding tax on your fee – be sure to check this. Also, get a tax certificate from the promoter to prove to your home country that the foreign tax is paid.
- The above also holds if you signed with an agency that does all the negotiation for you. Check what they are doing and if they know about taxation problems. An agency does not have an incentive to fix your personal tax problems – the exemption in international law (Article 17 OECD) that causes all the problems legally does not hold for them!
- Report the foreign income in your home country, but use the tax certificate and all documentation on income and expenses to reduce your tax burden. Try to find a good tax advisor with international income experience who can help you with this.
Getting booked abroad is awesome, and you should definitely grab your chance. However, this short introduction in the curious world of international tax law will have demonstrated that there is more to it than shines the surface. Your country of residence and the country you perform at squabble over the money you rightfully earned, which could lead to you paying double taxes if you don’t watch out.
References:
The OECD is the Organization for Economic Co-operation and Development and is an international economic organization of 34 countries, consisting of mostly the Western democracies and countries like Japan, Chili and Turkey. The United Nations also have their tax framework, but it is slightly more tuned towards developing countries and is less used.
- Piters, P., A Dance With Tax, Thesis Maastricht University (2015), page 78
- Centre Equestre da Leziria Grande Lda, ECJ 15 February 2007, C-345/04
- Paragraph 7. Official OECD commentary on Article 17
Get more tax tips:
- Here's a Simple Rundown of the Tax Forms You Need to Pay Musicians
- 4 Tax Write-Offs All Performers Should Take Advantage of Right Now
- 4 Tax Deduction Tips to Maximize Your Band’s Income
- Taxes for Musicians: A Simple Guide to All the Forms You'll Need
- Taxes 101: What Self-Employed Musicians Need to Know
Philippe Piters is a writer for Dotted Music marketing agency. Philippe holds a Masters in Fiscal Economics specialized in artist taxation from Maastricht University, Netherlands.
