Question Tag: Royalty

CHARTERED INSTITUTE OF TAXATION, GHANA PAPER 9: INTERNATIONAL TAXATION FEB 2020 SITTINGS

QUESTION 1 Address Introduction This question deal with the application of article 18 (2) of the Double Tax Agreement (DTA) between Ghana and United Kingdom.

General principle under article 18 is stated below Para 1: Income derived by entertainer, from his personal activities exercised in the other Contracting State is taxed in that state. It can also be taxed in the other state, notwithstanding the provisions of Articles 7 and 15- 2 marks

Para 2: Income accruing to another person in respect of personal activities exercised by an entertainer or a sportsman in his capacity notwithstanding the provisions of Articles 7 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised. 2 marks

In determining whether income falls under Article 18 of Double Taxation Agreement between UK and Ghana or another article, the controlling factor will be whether the income in question is predominantly attributable to the performance artist or other activities or property rights. 2 marks a. Notwithstanding the provision in Article 7 and article 15 of the DTA, the £100,000 paid to Dzoboku Lullaby Ltd for the public performance of the Professor will be tax in the UK under Article 18(1) and (2). It is also taxable in Ghana under section 3 and 5 of Income tax Act 896. 2 marks b. The nature of this income requires that the image for advert amount to an exploitation of right, taxable under article 12 – Royalty.

Commentary to the Article 18(1), provided that in general, other Articles would apply whenever there was no direct link between the income and a public exhibition by the performer in the country concerned. As result this income will be taxable in the UK. It may also be tax in Ghana. 2 marks c. Where similar income which could not directly be attributed to such performances or appearances would fall under the standard rules of Article 7 or Article 15 as the case may be. Payments received in the event of the cancellation of a performance in the Gibson Hall are outside the scope of Article 18 and fall under Articles 7. That income is taxable in Ghana only under section 3 and section 5 of the Income Tax Act 896. 2 marks d. 2% of the gate proceeds paid to Dzoboku lullaby. This income relates directly to the appearance of the Professor. So, notwithstanding the provision in Article 7 and article 15 of the DTA, the amount paid to Dzoboku Lullaby Ltd for the for the gate proceeds in respect of public performance of the Professor will be tax in the UK under Article 18(1) and (2). It is also taxable in Ghana under section 3 and 5 of Income tax Act 896. 2 marks e. 20% of income that accrued from businesses that advertised and paid to Dzoboku Lullaby Ltd will be tax in the UK under article 18 (1) and (2). It will also be tax in Ghana under section 3 and 5 of the Act 896. 2 marks

Conclusion Subject to the aforementioned, the HMRC, is justified in assessing the income for tax in a, b, d and e. Income stream c is only taxable in Ghana