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Prashant Bhojwani, Dhruva Advisors LLP


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SPORTS OUTBOUND – UNLOCKING TAX ASPECTS

Print Document  01 SEP 2020

The Indian Premier League is one of the most anticipated sports events in India, with a huge fan following. This year, the Indian Premier League is being held in the United Arab Emirates (UAE), starting September.

 

On account of a sports event being moved overseas, there are several interesting tax issues, which one has to deal with. This is essentially on the premise that there are potentially three countries involved – payer state (say India), payee state (say Australia) and source state (country where event is held) and one needs to consider the tax implications from the perspective of all three countries (popularly known as a triangular tax case). To add to the complexities, there are multiple stakeholders involved for sports events, which are outlined below and they could be located in various jurisdictions:

 

* Commercial rights holder of the event, sporting associations/ bodies

 

* Teams/ franchise owners, players, support staff

 

* Match officials, commentators

 

* Stadium associations, various service providers

 

* Broadcasters, advertisers.

 

The objective of this write-up is only to outline key tax issues and complexities, which arise on account of sports events being held overseas and this write-up does not focus on a particular sports event or attempt to comprehensively capture all potential issues which may arise. Following are some of the key tax issues to be considered:

 

* Withholding tax on payments to non-resident sportspersons (i.e. players)

 

Article 17 or 18 of tax treaties govern taxability of payments to sportspersons. Performance income earned by a sportsperson from activities exercised in another country may be taxed in that other country. In other words, tax treaties grant the country of performance the right to tax such income and taxation would be based on domestic tax laws of the country of performance.

 

If performance fee is paid by an Indian resident (such as an Indian team or franchise) to a non-resident, India should not have the right to tax such income as per the relevant tax treaty between India and the player's country of residence (say Australia). This is on premise that India is not the country of performance. UAE currently does not have personal income-tax and does not levy withholding tax. But theoretically speaking, if the sports event is held in a country which has a similar income-tax regime as India, the Indian resident payer would be required to withhold such country taxes (i.e. country where event is held).

 

* Withholding tax on payments to non-resident crew (e.g. coach, physician)

 

Article 14 or 15 of tax treaties deal with taxability of professional fee paid to individuals. As per the said Article, one needs to evaluate (a) whether the payee has a fixed base in India and (b) period of stay in India, for the purposes of taxability. Typically, as per India's tax treaties, the threshold of number of days stay in India for triggering taxability is 90 days (e.g. India-USA tax treaty). This may vary based on the respective tax treaty. As the sports event is held overseas, the non-resident payee should typically not have a fixed base in India nor should have physically stayed in India for the threshold number of days triggering taxability. Accordingly, Indian withholding tax should not be required to be withheld on such payments.

 

However, in such case, the Indian resident payer is required evaluate the withholding tax obligation of the country of performance and if such crew has been present more than the number of days specified in the relevant tax treaty, withholding tax of such country (country where event is held) should be applicable. For this purpose, one would have to consider the tax treaty between the country of performance and the payee's country of residency.

 

* Withholding tax on payments to residents

 

The Indian resident payer is required to withhold Indian taxes on payments made to Indian residents such as players or support staff. In this case, one needs to also consider whether the country of performance withholding tax is applicable. If the country of performance withholding tax is applicable, then potentially withholding tax of two countries is applicable on the same payment i.e. India and the country where event is held. Such payment could be performance fee paid to Indian players. This is based on the premise that the country of performance has a similar income-tax regime as India. Such dual withholding tax undoubtedly poses a practical challenge and cashflow related issues.

 

Correspondingly, one needs to consider foreign tax credit availability in India for Indian residents in respect of overseas taxes.

 

The above issues are illustrative, and complexities could definitely increase, based on facts, once a sports event is hosted overseas. Another issue which should be considered is whether the event could constitute a permanent establishment in the country of performance for the commercial rights holder, thus triggering taxability in such country.

 

To put things in perspective, taxation aspects related to sports events and sportspersons is a niche area globally, requiring expertise in this field. Given the length and breadth of stakeholders involved in sports events only adds to tax issues and complexities.

 

About the Author:

 

• Prashant has worked across direct tax specializations (corporate tax, international tax, personal tax, transfer pricing, transaction tax) besides foreign direct investment policy and exchange control regulations. This includes advising clients on investment structuring (both inbound and outbound), corporate restructuring, cross-border transactions, succession planning, business model optimization, compliance and litigation matters.

 

• Prashant is a chartered accountant with more than 15 years of experience in taxation field which includes advising Indian corporates and multinational companies (including Fortune 500).

 

• Prashant has authored several articles featuring in journals, publications, print and digital media and has also been a speaker at various conferences/ events on tax and media and entertainment sector related topics. He has been appointed to the National Committee on Media and Entertainment of the Confederation of Indian Industry (2015-19).

 

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Disclaimer: The views expressed in this article are personal. The publisher or the author disclaim all, and any liability and responsibility, to any person on any action taken on reliance of it

 


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