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Lights, sound, camera …and tax!

The argument to determine the place of supply of artistic services has been used by actors to protest tax demands in their home countries

In case you have not heard, a state tax authority in India has raised a VAT demand of about Dh1.2 million for the year 2012/2014 on a movie actor. The tax demand relates to the actor’s earnings from product endorsements and from anchoring at award functions.

At first glance, the aforesaid dispute may appear irrelevant for UAE. However, as the actor and similar other performers often perform in the UAE, the actor’s position for India taxation could create significant UAE VAT implications.

Indian tax system

Until July 2017, i.e. before Goods and Services Tax (GST), the taxation powers in India were divided between the state governments and the central government. The central government was empowered to impose tax on supply of services and the state governments were empowered to impose tax on sale of goods.

The state tax authorities contend that the actor has supplied ‘goods’ by way of a permanent transfer of IPR (i.e. copyright of the video recordings) of the event/advertisement. The actor has apparently disputed the tax demand by claiming that the actor worked as a performer in advertisements/award functions. In other words, the actor has supplied services as a performer.

Implications under UAE Taxation

As UAE VAT is imposed by a single authority (i.e. federal government) on both goods and services, the differentiation between goods and services is inconsequential for identifying the taxing authority. However, the differentiation could directly impact the place of supply of an actor’s service and the corresponding VAT liability.

Place of supply of artistic services

To determine the UAE VAT implications on supply of services, one needs to (a) determine the ‘place of supply’; and (b) if the ‘place of supply’ is within UAE, determine whether the supply qualifies for ‘zero-rating’ as export of services.

The place of supply of any cultural, artistic, sporting, educational or any similar services is the place where such services were performed. The residence of the supplier/recipient, the place of payment and of signing contract is practically irrelevant to determine the place of supply.

As the actor has claimed to have worked as a performer at the award functions, it can be inferred that the actor has supplied ‘artistic’ services. The actor’s claim will axiomatically mean that, for any award functions or a movie shooting conducted in the UAE, the artistic services would be performed in the UAE. The place of supply of an actor’s services in such scenarios will be the UAE. The argument could be also extended to singers’ performing at concerts organised in the UAE.

Non-eligibility of export benefits

Assuming that the recipient of actor’s services i.e. the producers are located outside UAE, one could argue that the services relating to award functions/movies in the UAE should be zero-rated. However, the Federal Tax Authority (FTA) has publicly clarified that zero-rating benefit are not available if the non-resident recipient creates a temporary presence in the UAE at the time the services are performed. For example, a law firm providing arbitration services to a non-resident company cannot zero-rate the supply if a representative of the company is physically present in the UAE to attend the court hearing. Similarly, the temporary presence of the producers or their representatives in the UAE could negate the zero-rating benefits on an actor’s supplies.

Not a new argument

The argument to determine the place of supply of artistic services has been used by actors to protest tax demands in their home countries. In our earlier Tax Conversation, we discussed the Saffron Burrows case of year 2007. The UK Tax Tribunal held that that the acting services should be treated as supplied and taxed in the country where performed, and not at the place of residence of the actor.

Global and industrywide impact

The actors would not alone under the UAE VAT coverage. The directors, camera persons, singers and similar performers from the movie industry could be treated as providing ‘artistic’ services. While the actor in the instant case hails from India, the actors and performers from across the world could be covered under VAT whenever performing in the UAE.

While the temporary presence in a country is not often associated with tax, the reality is otherwise. The tax position in one country could impact the tax liabilities in another country. As we all groove to “Jhoome jo Pathan..” song, the actors and other stakeholders should review their global tax positions comprehensively.

(Pankaj S. Jain is the managing director of AskPankaj Tax Advisors. For feedback and queries, you may write to info@AskPankaj.com. Views expressed are his own and do not reflect the newspaper’s policy.)