- 20 Marks
Question
Dzoboku Lullaby Limited is a Ghanaian music and orchestral company. Syntax Promotion, a company resident in the United Kingdom, extended an invitation to Dzoboku Lullaby Limited to a musical concert held in London in December, 2019.
Professor Abu, an employee of Dzoboku Lullaby Limited, was billed to perform for Syntax at two separate concerts in London, one at Gustaff Hall and the other at Gibson Hall. The following payments were made to Dzoboku Lullaby Limited by Syntax Promotion:
a. £100,000 for the public performance at the Gustaff Hall.
b. £20,000 for using the Professor’s image to advertise. The payment was deposited into Dzoboku Lullaby Limited’s bank account.
c. £50,000 for the cancellation of Gibson Hall’s event.
d. 2% of the gate proceeds received.
e. 20% of income that accrued from businesses that advertised at the Gustaff Hall event.
Her Majesty Revenue and Customs (HMRC) in the United Kingdom wrote to the Syntax Promotion demanding tax in respect of all incomes paid to Dzoboku Lullaby Limited. Syntax objected to the HMRC request stating that Dzobuku Lullaby Limited has no Permanent Establishment in the United Kingdom and, therefore, cannot be liable for a United Kingdom tax on business income earned by Dzoboku Lullaby Limited since there is a double tax agreement between Ghana and the United Kingdom.
Think Tank Consulting, a firm of Chartered Tax Practitioners in Accra was consulted by Syntax Promotion to advise them on the HMRC demand.
You are a Chartered Tax Practitioner in the employment of Think Tank Consulting and Syntax request was referred to you to deal with by your Managing Partner.
Required
Prepare a briefing note to the Managing Partner of Think Tank Consulting in which you set out clearly, with reasons, whether United Kingdom’s tax is due on each of the payments made to Dzoboku Lullaby Company Limited as demanded by the HMRC.
Answer
Address
Introduction
This question deals 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 performances 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 relate 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 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.
- Topic: Double Taxation and Relief
- Series: FEB 2020
- Uploader: Samuel Duah