A double taxation for artistes and sportsmen performing abroad?

While the world is enjoying the rapid expansion of the international entertainment’s market, artists are pulling a long face. What a surprise when you find out one day that you are taxed twice on the same income! Is it possible to escape ?

Anyone domiciled in Switzerland has to pay taxes on his worldwide income, no matter where it comes from (Art. 3 I and 6 I LIFD). This principle is called the unlimited liability to tax. Nevertheless the artiste or sportsman who had an activity abroad has generally already paid tax at source in the State where the activity has been performed. For example a conductor who performs in Paris, a DJ in a club in Los Angeles or a tennisman who plays a championship in Australia. These people will generally pay a source tax in the State where the service has been rendered. Sometimes they are not aware of it because they just receive the net income. As said before, because of the unlimited liability to pay taxes, they will have to declare that income in Switzerland and will therefore be taxed twice on the same income! Is that fair and how could you escape?

It is a case of double taxation, which can be avoided at international level only if a double taxation treaty exists between Switzerland and the State where the performance took place.

To avoid the problem, you must first make sure that a double taxation treaty exists between Switzerland and the Third State. If the answer is no, the double taxation cannot be avoided and the income is taxable in Switzerland. It is for example the case with Brazil: Switzerland has not concluded any double taxation treaty yet. On the other hand, in case a double taxation treaty exists, you have to analyze it to determinate which State is competent to tax. Most double taxation treaties concluded by Switzerland are based on the Model Tax Convention of the OECD.  The standard clause about artistes and sportsmen stipulates that income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsman from his personal activities as such exercised in the other Contracting State, may be taxed in that other State (Art. 17 I MC OECD). That means that the income of a Swiss artist, who performs in France is taxable in France, not in Switzerland! Consequently, the Swiss artist will have to separate income taxable in Switzerland and income taxable abroad in his tax declaration. It should be noted that this exemption is valid even in case of virtual double taxation, which is when the foreign State, although it has the power to tax, does not use it (no foreign tax at source).

It is important to analyze each double taxation treaty because they sometimes divert from the MC OECD Model. In that way for example, the double taxation treaty concluded with the United States: it stipulates that only annual income of more than USD 10'000.- will be taxed in the United States. For lower amounts, Switzerland is competent to tax.

You have to be aware that this exemption does not work automatically, you have to ask for it. That is the reason why you should refer to tax specialists, especially international tax experts if you think you are taxed twice. Retroactive corrections are not guaranteed, negotiations will be made on a case by case basis.

You have been taxed twice and did not notice? Act without further delay and contact us!