In this issue we cover five topics;
- Tax averaging for artists/composers
- Central Withholding Agreements in USA
- Foreign Entertainers Unit and Tax Returns
- VAT On Carnet services
- Digital supplies to UK and VAT
Tax averaging and new artist/composer signings
This is a useful bit of legislation for artists whose profits fluctuate such that are high in one year but low in an adjoining year, prior or post year. Under the averaging rules, profits are averaged between the two years thus reducing the overall amount of tax due. We have seen this used for new artists where there is a large advance in year one and nothing in the following year. The problem with using averaging in this way is that it averages income in the first year of trading which is not allowed. Before signing an artist to a publishing/recording deal it would be worthwhile their advisers considering what date they first started trading to make sure all the appropriate registrations are in place should there later be a need to adopt tax averaging.
Central Withholding Agreements USA
We have been informally notified by the IRS that for the future they will be seeking weekly or regular accounting from tours in the US by non-US resident artists. This places a further burden on touring in the US. Our concern is whether the failure to comply will result in the withdrawal of the CWA and/or refusal to entertain applications in future years?
FEU and Tax Returns
The Foreign Entertainers Unit (FEU) enforces the tax legislation as it applies in the UK to visiting artists, sportspeople and entertainers. The FEU have not, in our view, operated in a way that is consistent with the law in reaching decisions as to the amount of reduced tax that is applicable. There is no right of appeal against an FEU decision except by way of judicial review which can be expensive. However, where the FEU apply a decision that results in too much tax being withheld it is possible to file a Tax Return and recover tax due to the entertainer. We have filed a number of Returns that have been successful in recovering tax due to nonresident entertainers.
VAT on Carnet Service
A company charged VAT to a client based in the USA for assistance in procuring a carnet in respect of a tour going from the UK to the USA. The company charged the US client VAT on the basis that they ’charged all companies VAT regardless of where they are based as carnets are considered a service.’
The company was providing advice on how to acquire a carnet they were not issuing the carnet themselves. There is no VAT on the provision of these services to a person who does not belong to the UK (see S7 VATA 1994).
This is not the only case we have come across where VAT has been erroneously applied. In one instance a solicitor was charging VAT to a person who belonged in a non-EU country, fortunately, the VAT could be unwound without any damage.
Revisit – The new place of supply rules relating to business to consumer (“B2C”) supplies of digital services in the EU have come into force.
From 1 January 2015 the place of supply rules for B2C services has changed from where the supplier is established to where the customer lives. This means that from that date the supplier will need to register with, charge and account for VAT in the Member State where their customer lives.
There is a detailed definition of what constitutes a supply of a digital service but broadly this includes supplies of most types of broadcasting, telecommunications and e-services such as the download of apps, images, text or other information including the supplies of music films and games. It should be noted that copyright licensing and sale of hardware does not fall within the supply of digital services rules.
To ease the administrative burden a new voluntary scheme “Mini One Stop Shop (MOSS)” was introduced in each EU member state. The MOSS scheme will allow suppliers to account for VAT on all relevant supplies in the EU via a single VAT Return.
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