AUSTRALIA: Ending of withholding on payments to foreign entertainment support staff

From 1 July 2004 Australia has introduced a withholding tax regime for payments made to foreign residents engaged in entertainment and sports activities, including their support staff. Apparently, the entertainment industry (in particular reference has been made to the film industry) has objected against this procedure, because of the administrative burden that needs be fulfilled for obtaining a refund of the withheld Australian tax.

This applies to residents of countries with which Australia has concluded a tax treaty. These treaties typically contain a provision similar to Article 17 of the OECD Model, according which the source country (i.e. Australia) may tax income derived from entertainment and sports activities that have been exercised in Australia. It is commonly accepted that this applies only to the remuneration of the entertainers (and sportsmen) themselves, and not to support staff (or in the case of football not even to the coach of a visiting football team).

Supports staff may still be subject to Australian income tax, e.g. if they exercise their employment in Australia during a longer period of time. For residents of countries with which Australia has concluded a tax treaty, such tax liability is for employees limited by provisions such as Article 15 of the OECD Model Convention and for independent workers by provisions such as Article 7 (or 14) of the OECD Model Convention. The scope of the Australian withholding tax is thus indeed to broad, and as of 14 September 2007 has been reduced regarding payments to entertainment activities for support staff, if the support staff are residents of a country with which Australia has concluded a tax treaty and who are present in Australia for periods not exceeding 183 days in a financial year.

The exemption does not apply to payments relating to support staff regarding sports activities exercised in Australia.

It has not been publicised whether it is necessary in order to qualify for the exemption whether the payments to support staff must be made directly or whether foreign employing servicing companies may themselves indicate to the Australian recipient of the service how much of the payments relates to the salaries of support staff.