ATO Interpretative Decision

ATO ID 2004/560

Income Tax

• This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
  Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.

Issue

Is income derived by the taxpayer, a non-resident company, from on-stage performances whilst on tour in Australia assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997).

Decision

Yes. Income derived by the taxpayer, a non-resident company, from on-stage performances whilst on tour in Australia is assessable under subsection 6-5(3) of the ITAA 1997.

Facts

The company is a non-resident for Australian taxation purposes.

The non-resident company presented on-stage performances to the public at venues in Australia in the relevant year. The non-resident company received amounts and derived income from the conduct of those on-stage performances.

In order that the non-resident company can conduct the performances, it employs individual performers. The non-resident company also employs other staff it requires. These include, for example, lighting, stage and production staff as well as management and other ancillary staff.

Reasons for Decision

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year.

The International Tax Agreements Act 1953 (the Agreements Act) must be considered to determine whether Australia has a taxing right in respect of the income derived in Australia by the non-resident company. Subsection 4(1) of the Agreements Act incorporates the Agreements Act with both the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that those Acts are read as one. The Agreements Act gives the relevant double tax agreement (the Agreement), contained in a Schedule to the Agreements Act, the force of law in Australia.

Paragraph 2 of the Entertainers Article of the Agreement provides that, where income in respect of the personal activities of an entertainer as such accrues not to that entertainer but to another person, that income may be taxed in the State in which the activities are exercised. The General Definitions Article of the Agreement provides that the term 'person' included a company.

The income generating activity of the company is the presentation of on-stage performances to the public. Completion of each performance requires that exercise of particular skills and expertise of the individual performers. There is a direct link between the derivation of the income in Australia by the company and the performances undertaken by the company's performers in Australia. Accordingly, the income of the company is derived in Australia as a direct result of the personal activities of the performers in their capacity as performers.

The article also provides that taxing rights in the country in which the activities are exercised exist notwithstanding the business profits, independent personal services and dependent personal services Articles of the Agreement.

The High Court in Thiel v. Federal Commissioner of Taxation (1990) 171 CLR 338; 90 ATC 4717; (1990) 21 ATR 531 (Thiel) accepted that the OECD Model Tax Convention official Commentaries may be relevant to the interpretation of Double Tax Agreements based on the OECD Model Tax Convention. In Thiel, the OECD Model Tax Convention and Commentaries were approved as a supplementary means of interpretation to which recourse may be had under Article 32 of the Vienna Convention on the Law of Treaties.

Article 17(2) of the OECD Model Tax Convention is on substantially the same terms as the corresponding article in the relevant Agreement. For present purposes, paragraph 11 of the Commentary on Article 17 of the OECD Model Tax Convention states that:

•

If the income of an entertainer or sportsman accrues to another person and there are no look through provisions taxing the income as that of the performer, Article 17(2) provides that the portion of the income which cannot be taxed in the hands of the performer may be taxed in the hands of the person receiving the remuneration.

•

Where a team, troupe, orchestra, etc is constituted as a legal entity the income for performances may be paid to the entity. In such cases, the profit element accruing from a performance to the legal entity would be liable to tax under paragraph 2 of Article 17.

•

If the person receiving the income carries on business activities, tax may be applied by the source country even if the income is not attributable to a permanent establishment there.

In relation to the second point above, subsection 3(2) of the Agreements Act provides that references in the Agreement to profits of an activity or business are references to the taxable income derived from that activity or business. Similarly, the amount of the 'profit element accruing from the performances in Australia' is considered to be a reference to the non-resident company's taxable income from said performances.

Reference to the most recently published update of the OECD Model Tax Convention and Commentary is consistent with paragraphs 107-108 of Taxation Ruling TR 2001/13.

The non-resident company is constituted as a legal entity and employs a team, troupe or company of performers that present the on-stage performances. The income from performances accrues to the legal entity. On the basis of what is stated above, paragraph 2 of the Entertainers Article of the Agreement gives Australia the right to tax the non-resident company's income derived from on-stage performances undertaken in Australia.

The Source of Income Article of the relevant Agreement provides that, for present purposes, income derived by a non-resident which may be taxed in Australia under the Entertainers Article of that Agreement shall be deemed to be income from sources in Australia for the purposes of Australian tax law. Accordingly, income derived by the non-resident company from on-stage performances undertaken in Australia have an Australian source.

As a result, the income accruing to the company from performances undertaken in Australia is assessable income in Australia under subsection 6-5(3) of the ITAA 1997.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(3)

Case References:
Thiel v. Federal Commissioner of Taxation
   (1990) 171 CLR 338
   90 ATC 4717
   (1990) 21 ATR 531

Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/13

ATO Interpretative Decisions overturned by this decision
ATO ID 2003/950

Other References:
OECD Model Tax Convention on Income and Capital
Commentary on the Model Tax Convention on Income and Capital - OECD January 2003
Vienna Convention on the Law of Treaties

Keywords
Double tax agreements
Entertainers
Entertainment industry
International tax
Non resident companies

Siebel/TDMS Reference Number:  3852350

Business Line:  Public Groups and International

Date of publication:  9 July 2004

ISSN: 1445-2782