Article 17 - ARTISTES AND ATELETES

   This Article deals with the taxation of artistes (iU..,
performing artists and entertainers) and athletes resident in one
Contracting State from the performance of their services as such
in the other Contracting State. The Article applies both to the
income of an entertainer or athlete who performs services on his
own behalf and one who performs his services on behalf of another
person, either as an employee of that person, or pursuant to any
other arrangement. This Article applies, however, only with
respect to the income of performing artists and athletes. Others
involved in a performance or athletic event, such as producers,
directors, technicians, managers, coaches, etc., remain subject
to the provisions of Articles 14 (Independent Personal Services)
and 15 (Dependent Personal Services).

Paragraph 1

   Paragraph 1 describes the circumstances in which one State
may tax the performance income of an entertainer or athlete who
is a resident of the other State. Income derived by a resident
of one State from his personal activities as an entertainer or
athlete exercised in the other State may be taxed in that other
State if the amount of the gross receipts derived by the individ­
ual for the taxable year concerned exceeds $3,000 (or its equiva­
lent in Turkish Lira). The $3,000 includes only gross compensa­
tion for the services rendered and does not include expenses
reimbursed to the individual or borne on his behalf. If the
gross receipts exceed $3,000, the full amount, not only the
excess, may be taxed in the State of performance.

   The OECD Model permits the country in which the performance
occurs to tax the remuneration of entertainers or athletes with
no dollar or time threshold. The United States introduces the

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dollar threshold test in its treaties to distinguish between two

groups of entertainers and athletes -- those who are paid very

large sums of money for very short periods of service and who

would, therefore, normally be exempt from host country tax under the standard personal services income rules, and those who earn only modest amounts and are, therefore, not clearly distinguish­

able from those who earn other types of personal service income.

Paragraph 1 overrides the limitations on source State

taxation in Articles 14 (Independent Personal Services) and 15

(Dependent Personal Services). Thus, an individual who would be exempt from tax in the State where the services are performed

under those Articles may nevertheless be subject to tax in that
State under Article 17 if his gross receipts exceed the $3,000

threshold. An entertainer or athlete who receives less than the $3,000 threshold amount and who, therefore, is not subject to tax

under the provisions of Article 17 may nevertheless be subject to
tax in the host country under Article 14 or 15 if the tests for

taxation at source under those Articles are met. For example, if

an entertainer who is an independent contractor earns only $2,500
in the taxable year, but the income is attributable to a fixed

base regularly available to him in the State of performance (such

as a cocktail lounge in which he regularly performs), that State may tax his income under Article 14.

Income derived from one State by an entertainer or athlete who is a resident of the other State in connection with his or her activities as such, but from other than actual performance is not covered by this Article. Such incomp is covered instead by other articles of the Convention, as appropriate. For example, Article 12 (Royalties) would apply to any royalty income derived by the entertainer in connection with his or her activities. In

determining whether income falls under Article 17 or another

article, the controlling factor will be whether the income in

question is predominately attributable to the performance itself
or to other activities or property rights.

   Paragraph 2

Paragraph 2 is intended to eliminate the potential for abuse

when income from a performance by an entertainer or athlete does

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not accrue to the performer himself, but to another person.

Foreign entertainers commonly perform in the United States as employees of, or under contracts with, companies or other per­ sons. The relationship may truly be one of employee and employ­ er, such as in the case of a member of a team, with no abuse of

the tax system either intended or realized. On the other hand,
the "employer" may, for example, be a company established and
owned by the performer, which is merely acting as the nominal

income recipient in respect of the remuneration for the entertai­

ner's performance. The entertainer may be acting as an "employ­
ee," receiving a modest salary, and arranging to receive the

remainder of the income from his performance in another form or at a later time. In such case, absent the provisions of para­

graph 2, the company providing the entertainer's services might
escape host country tax because it earns business profits but has
no permanent establishment in that country. The entertainer may
largely or entirely escape host country tax by receiving only a

small salary in the year the services are performed, perhaps

small enough to place him below the $3,000 threshold in paragraph
1. He would arrange to receive further payments in a later year,
when he is not subject to host country tax, perhaps as salary
payments, dividends or liquidating distributions.

   Paragraph 2 seeks to prevent this type of abuse while at the
same time protecting the taxpayer's right to the benefits of the
Convention when there is a legitimate employee-employer relation­
ship between the performer and the person providing his services.

Under paragraph 2, when the income accrues to a person other than

the performer, and the performer (or persons related to him) participates, directly or indirectly, in the profits of that

other person, the income of that other person may be taxed in the
Contracting State where the performer's services are exercised,
without regard to the provisions of the Convention concerning
business profits (Article 7) or independent personal services

(Article 14). Thus, even if the "employer" has no permanent

establishment or fixed base in the host country, its income may
be subject to tax there under the provisions of paragraph 2.
Taxation under paragraph 2 is imposed on the person providing the
services of the entertainer or athlete. This paragraph does not
affect the rules of paragraph 1, which apply to the entertainer
or athlete himself. The income taxable by virtue of paragraph 2

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is reduced to the extent of salary payments to the performer,

which are addressed by paragraph 1.

   For purposes of paragraph 2, income is deemed to accrue to

another person (i-.., the person providing the services of the entertainer or athlete) if that other person has control over, or

the right to receive, gross income in respect of the services of

the entertainer or athlete. Direct or indirect participation in the profits of a person may include, but is not limited to, the

accrual or receipt of deferred remuneration, bonuses, fees,
dividends, partnership income or other income or distributions.

   The paragraph 2 override of the protection of Articles 7

(Business Profits) and 14 (Independent Personal Services) does

not apply if it is established that neither the entertainer or

athlete, nor any persons related to the entertainer or athlete,

participate directly or indirectly in the profits of the person

providing the services of the entertainer or athlete. Thus, for

example, assume that a circus owned by a U.S. corporation per­
forms in Istanbul, and the Turkish promoters of the performance

pay the circus, which, in turn, pays salaries to the clowns. The circus has no permanent establishment in Turkey. Since the clowns do not participate in the profits of the circus, but

merely receive their salaries out of the circus' gross receipts,
the circus is protected by Article 7 and its income is not

subject to Turkish tax, except to the extent consistent with the provisions of Article 7. Whether the salaries of the clowns are subject to Turkish tax depends on whether they exceed the $3,000 threshold in paragraph 1, and, if not, whether they are taxable

under Article 15 (Dependent Personal Services).

   This exception to the paragraph 2 override of the Articles 7
and 14 protection of persons providing the services of entertain­

ers and athletes is not found in the OECD Model. The OECD Model would override Articles 7 and 14 even in non-abusive situations,

i.e., even where the performer does not participate in the
profits of the person providing the services and receiving the

income. The paragraph 2 override in this Convention, however,

applies only in the potentially abusive situation where the

performer participates in the profits of the venture. The

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language of this paragraph is consistent with the U.S. reserva­
tion to paragraph 2 of the OECD Model.

   Paragraph 3

   Under paragraph 3, neither paragraph 1 nor 2 will apply to
certain income derived by entertainers or athletes or their
sponsoring organizations. In these cases, the provisions of
Article 7 (Business Profits), 14 (Independent Personal Services)

or 15 (Dependent Personal Services) will apply. The cases

covered by paragraph 3 are those where the performance by the
entertainer or athlete in the host State is substantially sup­
ported by either a non-profit organization of the other Contract­
ing State, or by that other State itself or a political subdivi­
sion or local authority of that State. The income of enter­
tainers or athletes whose performances come within these categor­

ies is subject to Article 14 (Independent Personal Services) or

15 (Dependent Personal Services), and the income of the sponsor­
ing organization would be subject to Article 7 (Business Profits)

or 14 (Independent Personal Services). Thus, for example, if the New York Philharmonic gave a concert in Istanbul, the members of

the Orchestra would not be subject to Turkish tax even if their
income from the performances in Turkey exceeded $3,000 in a year,
so long as they were not present in Turkey for more than 183 days
in a continuous 12-month period.

Relation to other articles

   As indicated, the provisions of Article 17 generally expand
the circumstances in which the source State may tax beyond those
provided in Articles 14 (Independent Personal Services) or 15

(Dependent Personal Services). It also overrides Article 7

(Business Profits) or 14 (Independent Personal Services) in cases

described in paragraph 2. Where Article 17 does not operate to

permit source State taxation, the source State may nonetheless

tax in accordance with provisions of these other Articles.

   This Article is subject to the provisions of the saving

clause of paragraph 3 of Article 1 (Personal Scope). Thus, if an entertainer or athlete who is resident in Turkey is a citizen of

the United States, the United States may tax all of his income

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from performances in the United States without regard to the

provisions of this Article.