26-08-2016 / Minimum threshold in tax treaties


Artists and sportsmen have to pay foreign tax in the countries of their performances or sports events. Back in their home country, artists and sportsmen also need to pay income tax, but can use a foreign tax credit or exemption to eliminate double taxation. But the chance is very likely that the foreign tax will be higher than the credit or exemption, resulting in excessive taxation, which happens especially when the income of the artist or sportsman is not so high. We have written very often about this tax problem.

An option to take away this problem is to introduce a minimum threshold for the income to be taxed in the country of the performance. The US already applies this in its tax treaties, standard in its Model Tax Convention with a threshold of $20,000, which has been increased in the new 2016 Model Tax Convention to $30,000.

The OECD recommends such a minimum threshold in tax treaties also to other countries. As example the OECD has given 15000 IMF Special Drawing Rights, which is approx. € 20.000.

Dick Molenaar has written two articles about the background of this minimum threshold. It would be very helpful for smaller artists and sportsmen when countries would start to include this in their bilateral tax treaties, so that excessive taxation can be eliminated.

Important is that the minimum threshold can be used already during the year, because application just after the taxable year makes the threshold hardly effective.

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