Article 17. ARTISTES AND SPORTSMEN

This Article deals with the taxation by one State of artistes ( i.e ., performing artists and entertainers) and sportsmen resident in the other State from the performance of their services as such. The Article applies both to the income of an entertainer or sportsman 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. The rules of this Article take precedence over those of Articles 14 (Independent Personal Services) and 15 (Dependent Personal Services). This Article applies, however, only with respect to the income of performing artists and sportsmen. Others involved in a performance or athletic event, such as producers, directors, technicians, managers, coaches, etc., remain subject to the provisions of Articles 14 and 15.

Paragraph 1 provides that income derived by a resident of one State from his personal activities as an entertainer or sportsmen exercised in the other State may be taxed in that other State. This provision corresponds to the OECD Model, but departs from most recent U.S. treaties in that the latter have introduced a dollar threshold test to distinguish between individuals who earn very high compensation in a short period of time, and modestly compensated individuals who are not clearly distinguishable from those who earn other types of personal service income. The potential inconsistency in treatment of modestly compensated artistes and sportsmen on the one hand and other categories of modestly compensated employees on the other is addressed in part, however, by paragraph 3 of this Article, which is discussed below.

Income derived from one State by an entertainer or sportsman who is a resident of the other in connection with his activities as such, but from other than actual performance, such as royalties from record sales and payments for product endorsements, is not covered by this Article, but by other articles of this Convention, such as Article 12 (Royalties).

Paragraph 2 is intended to eliminate the potential for abuse

when income from a performance by an entertainer or sportsman does not accrue to the performer himself, but to another person. Foreign entertainers commonly perform in the United States as employees of, or under contract with, a company or other person. The relationship may truly be one of employee and employer, with no abuse of the tax system either intended or realized. On the other hand, a nominal employer may be a company established and owned by the performer, and merely act as the nominal recipient of the remuneration for the employee's performance. The entertainer may be acting as a nominal employee for a nominal salary, and arrange to receive the remainder of the income from the performance at a later time or in another form. In such case, absent the provisions of paragraph 2, the company providing the entertainer's services could attempt to escape host country tax because it earns business profits but has no permanent establishment in that country.

Paragraph 2 prevents this type of abuse while protecting the taxpayer's rights to the benefits of the Convention when there is a legitimate employer-employee relationship 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 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 sportsman. This paragraph does not affect the rules of paragraph 1, which apply to the entertainer or sportsman himself. To the extent of salary payments to the performer, which are treated under paragraph 1, the income taxable by virtue of paragraph 2 to the person providing his services is reduced.

For purposes of paragraph 2, income is deemed to accrue to another person (i.e., the person providing the services of the entertainer or sportsman) if that person has control over, or the right to receive, gross income in respect of the services of the entertainer or sportsman. 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.

Paragraph 2 does not apply if it is established that neither the entertainer or sportsman, nor any persons related to him, participate directly or indirectly in the profits of the person providing the services of the entertainer or athlete.

Paragraph 3 provides an exception to the rules of paragraphs 1 and 2. It exempts income of a resident of one of the Contracting States from tax in the State in which the artiste or sportsman performs his activities if the visit to that State is substantially supported by public funds of the State in which the artiste or sportsman resides, or the visit is made pursuant to an arrangement agreed to by the Contracting States (such as a cultural exchange). Thus, for example, if an orchestra or ballet troupe that is substantially supported by public funds in one of the States were to visit the other Contracting State, its members would not be subject to tax in the other Contracting State on their income from performing in the other Contracting State.

This article is subject to the provisions of the saving clause of paragraph 3 of Article 1 (General Scope).