Tax Treaty Series

ITQ T-

044

May 29, 2020

Question

Ms X, a resident of X, is an influencer on several social media platforms. She owns 100% of the shares in XCo, a company resident in X. Ms X is employed by XCo.

XCo produces videos in which Ms X advertises various goods. For such advertisements, XCo is paid fees ("advertising fees") by the manufacturers of those goods ("advertisers").

Prior to COVID-19, Ms X also attended public events at which XCo was paid fees ("appearance fees"), by fashion companies, for Ms X to wear specific clothes at the event.

Some of the filming and events occurred in Y and other countries outside X. Also, some of the advertisers and fashion companies are resident in Y. Ms X has a large fan base in Y.

The X/Y treaty is identical to the 2017 OECD model treaty.

XCo does not have a PE in Y under Art. 5.

Under the X/Y treaty, is Y permitted to levy income tax on advertising and appearance fees which are received by XCo? Please consider 3 situations: (i) filming / events occurred in Y, but advertisers and fashion companies are not resident in Y (and do not have PEs in Y); (ii) filming / events did not occur in Y, but advertisers and fashion companies are resident in Y; and (iii) filming / events did not occur in Y, and advertisers and fashion companies are not resident in Y (and do not have PEs in Y).

Answer

Threshold issue #1: to what extent are Ms X's activities those of an entertainer, and are therefore potentially covered by Art. 17? See OECD Comm., para. 3 et. seq.:

Producing videos: yes, entertainer activities
Event attendance: OECD Comm. says that "a model performing as such" is not acting as an entertainer (but several OECD and non-member jurisdictions have noted their disagreement). Is Ms X acting as a model when she attends events, at which she is paid to wear specific clothes?

Threshold issue #2: does Y domestic tax law attribute XCo's income to Ms X?

Situation (i):

If entertainer activities: income which is referable to filming / events which occurred in Y is permitted to be taxed by Y, with XCo (Art. 17(2)) or Ms X (Art. 17(1)) as taxpayer
If not entertainer activities: Art. 17 is not applicable; the income is exempt under Art. 7(1) or 21(1), regardless of the taxpayer
In both cases, Ms X's salary is exempt (Art. 15(2))

Situations (ii) & (iii):

Art. 17 is not applicable
Income is exempt under Art. 7(1) or 21(1), regardless of the taxpayer
Ms X's salary is exempt (Art. 15(2))

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