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HMRC internal manual

International Manual

Foreign tax paid on trade income: limitation on credit: Artistes/athletes/sportsmen

As indicated in INTM153190, the country in which an entertainer or sportsman performs has primary taxing rights over the income he derives from his performances in that country. Many foreign countries impose a withholding tax on the payments made for such performances at a fixed percentage of the gross payments. These are final taxes and normally claims cannot be made to the foreign country to have the expenses incurred in earning the payments deducted from the gross amounts. Where a resident entertainer or sportsman is charged to UK Income Tax on profits or gains arising from any profession or vocation, he is entitled to credit for these foreign taxes against the UK tax on the UK measure of that income, that is, the income less the expenses incurred in earning it. The credit will be the lesser of the foreign tax and the tax at his marginal rate (see INTM165040 onwards).

Where, however, a resident entertainer or sportsman is employed by a service company, the income from his performances is income of that company and he is paid a salary out of that income. Credit for the foreign tax paid on the payments for his performances is due against the Corporation Tax payable by the company on its profits. The income of the entertainer or sportsman is remuneration from the service company and not the original fees paid to the company and he is not therefore entitled to credit for such foreign tax against the UK tax on his salary.

Nonetheless, it is possible that that a different treatment may be available where the foreign tax is imposed in a personal capacity on the entertainer etc notwithstanding that the performance payments are made to the service company. This treatment is intended to put the entertainer etc in a similar position when receiving remuneration from a service company in respect of overseas income that can be matched to a particular source, to the one he would have been in had he received the income direct. For instance, if a clear and direct link can be made between the fees for the performance in the overseas country and the income arising to the performer in the form of remuneration from the service company then it may be that the remuneration derived by the entertainer can be identified with the income taxed by the foreign tax authority. Where there such a link can be made, and the interval between the two events is short, it may be possible to allow the tax credit against income tax charged on the entertainer etc. Any credit given to the entertainer etc must be restricted in accordance with TIOPA10/S36 and S37, by reference to expenses (see INTM168010 onwards.)

Please therefore refer to Personal Tax International (PTI) Advisory. (part of Charity, Assets & Residence) where (i) a claim to credit for foreign tax is made by the entertainer or sportsman and (ii) the foreign tax has been imposed on the income received by the service company but (iii) the overseas tax authority has disregarded the existence of the service company and taxed the income as if it belonged to the entertainer or sportsman. This treatment will not be available where a deduction for the foreign tax has been allowed to the company under S112 TIOPA10.