Foreign Taxation of American Entertainers, Athletes, and Artists

AuthorLionel S. Sobel
Pages305-321
305
CHAPTER 11
Foreign Taxation of American
Entertainers, Athletes,
and Artists
The Possibility of Double Taxation of Foreign Source Income
U.S. Law Remedies to Reduce or Eliminate Double Taxation
Exclusion of Foreign-Source Income
What Is Foreign Earned Income?
What Are Foreign Housing Costs?
Who Is Eligible to Exclude Foreign Earned Income and Housing Costs?
How Much Can Be Excluded?
Is There Any Reason Not to Exclude Foreign Earned Income and Housing
Costs?
Deduction for Foreign Taxes Paid
Credit for Foreign Taxes Paid
What Counts as a Foreign “Income Tax”?
How to Calculate the Amount That May Be Taken as a Credit
Selecting the Remedy That Saves the Most
Deduction versus Foreign Tax Credit
Foreign Tax Credit versus Foreign Earned Income Exclusion
The Possibility of Double Taxation
of Foreign Source Income
The taxes that American entertainers must pay in foreign countries
are determined solely by the laws of those countries. Each country
has the sovereign right to tax income earned within its borders as that
country sees fit, subject only to whatever limitations a country may
have agreed to in tax treaties. As a result, neither the United States
nor the Internal Revenue Code have anything to say about what taxes
are imposed on Americans by other countries.
sob29807_11_c11_305-322.indd 305 1/30/15 11:57 AM
306 CHAPTER 11
Nonetheless, there are similarities between U.S. and foreign tax
laws. Other countries
impose taxes on income earned there, though in many coun-
tries the rates are higher, the brackets are narrower, and the
allowable deductions are different than in the United States;
collect social welfare taxes that are equivalent to U.S. Social
Security and Medicare taxes; and
require tax withholding.1
Some other countries also collect taxes that have no equivalent in
the United States, such as Value-Added Taxes (VAT), that may apply
to income earned by entertainers, including Americans.
Because the United States taxes the worldwide income of its
citizens and resident aliens, and other countries may tax the income
Americans earn in those countries, American entertainers who earn
money abroad could be taxed twice on the very same income.
Tax treaties are designed to avoid, or at least minimize, the dou-
ble taxation of income, and the United States has entered into tax
treaties with many countries, but not all. Because treaties do not pro-
tect against the double taxation of all income—especially not income
earned by entertainers (as you’ll see in Chapter 12)—and because the
United States doesn’t have tax treaties with all countries, some Ameri-
cans are vulnerable to double taxation on their foreign-source income.
U.S. Law Remedies to Reduce
or Eliminate Double Taxation
While the Internal Revenue Code can’t control what other countries
do, it can and does offer some relief to U.S. citizens and resident aliens
who pay tax in other countries. The Code does so in three ways:
by allowing a certain amount of foreign income to be excluded
from U.S. income
1. See, e.g., Taxation of Non-resident Actors Providing Film or Video Acting Services in
Canada, C. R. A, http://www.cra-arc.gc.ca/tx/nnrsdnts/flm/ctrs
/wthhld-eng.html (last visited Nov. 6, 2014); U.K. Foreign Entertainers Unit, HM
R. & C, http://www.hmrc.gov.uk/feu/feu.htm (last visited Nov. 6, 2014);
’’Taxation in New Zealand, http://www.filmauckland.com/tvc/logistics/facts
/Taxation+in+New+Zealand (last visited Nov. 26, 2014).
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