Many celebrities are facing legal issues because of tax ramifications for work they have performed outside of their home country. The Colombian singer and songwriter Shakira recently wrapped up a tax fraud trial in Spain, which resulted in her paying a massive fine.
It is vital that professional athletes, entertainers, the teams of people who travel with them, and businesses with a global footprint and talent in multiple regions, understand their country-specific payment obligations to avoid paying large penalties. Those who appreciate the risks and take proactive steps to mitigate them will be best positioned.
Compliance obligations: Before entertainers, individual athletes, and sports teams decide to go on tour, participate in events, or companies send their teams to work in foreign countries, everyone must review the tax rules set by each country. This process will ensure that they are compliant.
Your clients should work with a tax expert to review the fact pattern for each event they will participate/perform in. If the worker or team’s travel/appearance plans are analyzed in advance, they can plan for the most beneficial tax treatment while ensuring compliance with both tax and immigration requirement in each jurisdiction. High-risk positions can be analyzed and planned for by eliminating potential disruptions or delays.
Tax treaties and compensation: It is imperative that workers interpret and understand bilateral tax treaties because they contain specific regulations that can apply to different visitors. In doing so, they may be able to prevent double taxation on their income and compensation of qualifying employees.
– Employees accompanying their client may have a filing requirement in some treaty jurisdictions even if they qualify for tax exemption.
– Most treaties, however, include a specific article addressing the taxation of entertainers or athletes. In general, taxation in the host country will apply if a set earning limit is surpassed. It is necessary to analyze earnings and determine sourcing/allocation of such income where a double tax treaty provision exists. Other income generated in a country should also be considered in determining the treatment under an income tax treaty. This can include sponsorship payments and bonuses for special appearances.
– Use of employees over agency and contract workers: With the changes in our ways of working, tax authorities are beginning to scrutinize the use of contingent labor – agencies and contractors – in organizations. To avoid risk, organizations must strategically manage their partnerships with agency workers and contractors and only use them when necessary. Otherwise, it’s best for companies to stay in-house and have their employees take care of financial and tax obligations.
In Spain, the use of agencies & contractors under the Temporary Employment Agencies (TEA) is commonly accepted. If a business decides to use a contractor, it is essential they ensure the relationship meets the conditions to be considered a commercial relationship. If such rules are not met, there is the risk the individuals will be deemed to be employees and all taxes and employment related costs applicable to employment arrangements could apply. Penalties may also be charged if this treatment is deemed to be an avoidance tactic.
Attracting Expat Talent from a Tax Perspective:
On the flipside, the Spanish Tax Authorities are also trying to make it easier to attract Spanish talent back home. Under the Beckham Law, which was introduced in 2023, workers who reside abroad that wish to return to Spain can pay income and wealth tax as if they were non-residents for the first 6 years of their return. The law also reduces the requirement for prior non-residence from 10 to 5 years before the start of the assignment to Spain. In a nutshell, it grants taxpayers under this special tax regime a flat rate of 24% versus a general tax rate that can go up to 49%, which is a bargain for expats hoping to move their businesses back to Spain.
Even within one’s home country, tax regulations and compliance are complicated. Companies and workers across industries who understand how to navigate these complexities will be best positioned to continue their routine operations and travels without delays, fines and avoid reputational issues.
