Local withholding tax can be a complex area to navigate and without the right advance preparation and advice, it’s easy to make mistakes which can expose artists to significantly higher tax charges.

For me, there are three main reasons why this cost should be taken seriously:

• Withholding tax is a significant cost that artists incur at the time of their show and needs to be planned for as part of preparing tour budgets and cashflow forecasts.
• Jurisdictions such as the UK and US have even legislated that claimants must have reduced their withholding tax as much as “reasonably” possible, to offset it fully.
• The tax affairs of celebrities often make the headlines for the wrong reasons so whilst mitigating tax costs as much as possible, artists and their advisers should always be mindful of adhering to compliance requirements.

Has the cost of touring gone too far?

The costs of touring for artists and putting on shows for smaller venues has received significant airplay over the past year, and quite rightly so!

For smaller artists, the level of withholding tax hit the headlines in IQ recently, with non-USA artists looking enviously at the $20,000 de-minimus contained within the majority of tax treaties the USA has with other countries, which allow most small US acts to avoid the withholding tax cost of touring. However, for US artists this de-minimus is not always applied automatically and may need to be claimed, hence it could still be a cashflow cost, with a possible repayment later. The UK does operate an administrative de-minimus for foreign artist withholding tax linked to the personal allowance (£12,570) but there are limitations to its operation, and it is not an exemption; it is simply for administration purposes and once exceeded, the whole amount is taxable.

Ideally, the UK and other countries would bow to pressure and include withholding tax exemptions or limit its scope, changing international tax treaties takes years, so the onus is on local jurisdictions to implement local laws to effect change.

Interestingly, there are some contradictory rules when it comes to tax in the UK and whilst there are significant tax incentives for industries including TV and Film (via a tax credits system), no government incentives apply to the music touring industry.

Contract wording and withholding tax

I am often asked to comment on withholding tax matters within show contracts and it is obviously important to establish the parties’ obligations in this regard.

An area that usually prompts a lot of discussion is the “net deal”. This is where the promoter offers an amount, net of taxes. Sometimes this is used where no withholding taxes are applied, such as Ireland, Denmark and Netherlands. Outside of these, withholding taxes will be applicable so advisers need to know the amount of taxes an artist will be liable for (to reach the net) and also receive back-up documentation, should an artist’s home tax authority want to substantiate the amount being claimed as a credit against home taxation. Failure to understand or pin down the local withholding tax amount in any “net deal” can result in an artist having a higher overall tax burden than would otherwise arise.

So how does Withholding Tax generally operate and are there any changes in approach?

Withholding tax can operate very differently country by country. Some jurisdictions don’t withhold, some use a tax on net profit basis (subject to an application process), whereas most of Europe and South America tax the gross income the artist will receive but at a supposed lower rate (perhaps with contract splits).

Filing withholding tax applications on time continues to be the key for the countries operating on a net basis. Failing to do this can cause havoc on tour cashflow. Whilst any overpayment can be reclaimed on filing a tax return, this may not be allowed until long after the tour has finished and many months after vendors will want to be paid.

As far as changes in approach, we are seeing differences between promoters in France and Spain regarding contract splits and the need to provide back-up documentation. Whilst having documents to support your expenditure is clearly the preferential route, we have seen some Spanish promoters requiring the artist entity to provide an indemnity to them (should the tax authorities view that more withholding tax is owed and go after the promoter).

South America has been a high withholding tax jurisdiction for some time, to the extent that some of our clients are questioning going there. Whilst withholding mitigation is limited, there is increased speculation that Brazil’s desire to fully join the OECD may result in a loosening of the withholding tax burden (25% on gross), which would be very welcome.

The second part of this article will be published this Friday (28 March 2025). 

For further information about withholding tax or any of the issues raised, please contact Steve Wren.

_____________________________________________________________________________________________________________________

About Steve

Steve Wren is a tax partner at SRLV, one of the UK’s top three accountancy and business advisers to the music industry.  Voted in consecutive years as one of Billboard Magazine’s Top Business Managers in 2024, he’s specialised in the taxation of entertainment clients since 1992 and advised touring artists, from independents to household names on a regular basis, for more than 15 years.

Alongside UK musicians and international acts, Steve and his team regularly advise promoters and agents across a range of tax matters, including more specialist areas, such as withholding tax.

 

This material is published for the information of clients and contacts. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or SRLV LLP.