Note: due to its length the full brief can be found at the link below (.pdf)
http://www.divshare.com/download/18575767-4e3
Ralph E. Winnie, Jr is
Director of China at the Eurasia Center and Vice
President of GlobalBusiness Development for the Eurasian Business
Coalition.
Athletes and entertainers are among the most
transient and mobile individuals in the international
community. The types of services performed on
a daily basis and the types of income generated from
theprovisionofthoseservicesarequitevarieddepending
on the nature and level of activity. Entertainers
and athletes travel the globe to work on movies and
television shows, perform in charity events, and participate
in and promote sporting events and competitions.
Consequently, as an entertainer or an athlete
becomes increasingly well known in the international
community, his income may not just be derived in his
country of residence but in other countries as well.
Therefore,thetiesasaresidenttoaparticularcountry
tend to lessen because those individuals may spend a
great deal of time abroad earning income in many
different countries. This article discusses: (1) the difficulty
in taxing nonresident athletes in the United
States, Canada, and Mexico; (2) the feasibility of a
separate tax regime for nonresident athletes; (3) the
difficulties faced by nonresident athletes in paying
taxes; (4) the characterization and allocation of the
income athletes receive; (5) the possible methods of
taxing athletes; and (6) a special income tax and
withholding tax regime for nonresident athletes.
Problems taxing performance-related bonuses
paid by some nations to their athletes during international
competitions illustrate how taxing athletes
in the source country can be difficult because of the
short stay and the lack of a strong nexus or ties with
that country. That problem came to the forefront just
before the start of the 2000 Olympic Games in
Sydney. The Australian Taxation Office originally
indicated that any athlete who picked up bonuses
from their national Olympic committees or sponsors
would be liable for tax in Australia because the
performances took place on Australian soil. However,
when Olympic athletes receive income while
performing in competitions, problems frequently
arise on how that income will be taxed. The payer,
either the national Olympic committee or a sponsor,
is not located in Australia, the country of source in
that particular case. As a result, Australia has no
chance to seize anything or require the payer to
make a tax payment. In effect, the Australian
Taxation Office expected the athletes to come forward
voluntarily to report their earnings and seek
help establishing their tax liability.
In theory, any country, including Australia, could
tax an athlete who was paid for competing on its soil.
However, in practice, it places an onerous compliance
burden on the athlete. In all probability, the
athletes can pay the tax. However, the people who
manage their money find it frustrating because of
the huge amount of paperwork involved. ‘‘It’s an
accounting nightmare,’’ says Leigh Steinberg, an
agent and tax attorney for prominent athletes.
I. Definition of Entertainer and Athlete
In evaluating the issues and problems associated
with a separate tax regime for nonresident athletes,
a tax scholar or analyst must first make a distinction
between athletes and entertainers. Although it
may appear that the terms ‘‘athlete’’ and ‘‘entertainer’’
are one and the same, there is a distinction
between the two categories. That distinction must
be understood before a complete analysis of the
feasibility of a separate tax regime for nonresident
athletes can be comprehensively examined. Although
it is important for tax administrators to
prevent tax collection from becoming unreasonably
burdensome and expensive for athletes, if nonresident
athletes are treated in the same manner as
other nonresident professionals providing personal
services, countries must be able to retain their share
of income earned by foreign athletes. Further, it is
questionable whether entertainers and athletes
should be treated differently for enforcement purposes
compared to other individuals who provide
highly mobile services, such as architects, engineers,
or contractors. To the extent that a special regime is
established just for entertainers and athletes, those
individuals are treated separately from other categories
of taxpayers.
It is questionable whether athletes
should be treated differently for
enforcement purposes than other
individuals who provide highly
mobile services.
It must be determined before any discussion of
the taxation of entertainers or athletes just who is
considered to be one. According to John J. Coneys
Jr., international tax partner, PricewaterhouseCoopers
LLP, and Meril L. Benjamin, international tax
manager, PricewaterhouseCoopers LLP, Los Angeles,
individuals are treated as ‘‘entertainers’’ or
‘‘athletes’’ if their activity constitutes a public performance.
They must be engaged in public entertainment
and must be a part of the actual performance,
not simply working behind the scenes, like a
producer, director, coach, or trainer. It has been
widely held that film actors, musicians, and newscasters
constitute entertainers. Consequently, the
term ‘‘athlete’’ was derived to encompass all sportsmen
in the broadest sense of the word. Furthermore,
a ‘‘sportsman’’ is ordinarily ‘‘considered to be
an individual who engages in some physical or
mental activity which is exercised as an end in itself,
usually in line with certain rules and in certain
forms of organization designed specifically for it.’’
No particular degree of professionalism is required.
However, the terms ‘‘entertainer’’ and ‘‘sportsman’’
have been used interchangeably in the 1992 OECD
model treaty and the U.S. model conventions. Those
both discuss the avoidance of international double
taxation on income and capital derived by nonresident
entertainers and athletes.
When evaluating the feasibility of a separate tax
regime for nonresident athletes, arriving at a fair
and reasonable approach is difficult. Both the tax
administrator’s and the athlete’s goals must be
balanced. The tax administrator’s goal is to receive a
fair share of income derived from services performed
by the athlete in the source country. The athlete, on
the other hand, wants to minimize the risk of double
taxation. That term has been used to refer to all
international and domestic provisions, specifically
in situations involving the territory of more than one
state, so-called cross-border situations. An approach
has evolved for addressing the concerns of
both the tax administrator and the athlete with the
creation of bilateral treaties making reference to a
provision dealing with issues of international taxation
affecting the athlete and the entertainer.
