When is an entertaining person not an entertainer for tax purposes
In August 2012 ENS hosted the first of what will be an annual ENS seminar on tax law in the sports industry. Tax issues in the sports industry have generally lagged behind other industries (such as say the mining, manufacturing or insurance industries) because of the paucity of the quantum of litigation, academic scholarship and legislative action devoted to it. However, there has recently been a growing body of statutory law and administrative guidance which suggests the existence of a separately identifiable body of tax law dedicated to the sports industry.
While preparing for the ENS sports tax seminar I asked the seminar participants which topics they felt a seminar on the discipline of sports tax should entail. The topics ranged from the tax treatment of image rights, the tax treatment of player transfers, the tax treatment of sports academies to the tax treatment of foreign sportspersons or foreign entertainers compared to other foreign taxpayers when they travel to South Africa to render services.
In this article and subsequent articles I will delve a bit more deeply than I did at the seminar on these issues starting with a discussion on the tax treatment of non-resident entertainers and sportspersons. This topic is of interest not only to the sports industry but to any SA resident which hires foreign entertainers such as actors, comedians, magicians, dancers or radio or tv personalities who perform services in South Africa.
The specific question posed was whether there is any obligation on an SA resident who hires a retired sportsperson to provide commentary or expert analysis on a sports match to withhold taxes. It is assumed that the retired sportsperson has by virtue of his entertaining commentary become something of a tv personality. Accordingly, the crisp issue is whether he is covered by this provision and the SA resident consequently has an obligation to apply the special tax provisions for entertainers or sportspersons.
It should be said that definitive views on questions of this nature are always fact dependent and hence it cannot be said conclusively that the views in this article will necessarily apply to other situations. For example, this article does not deal with the question whether the foreign person is an employee or an independent contractor.
The special provision for entertainers or sportspersons
With convenience and mobility of travel and relatively open borders it is quite common for entertainers or sportspersons to live in one tax jurisdiction and to earn income in another jurisdiction.
South Africa, like most countries, has firm statutory authority for imposing taxes on such non-resident entertainers or sportspersons. The scheme for imposing such taxes is contained in sections 47A – 47K of the Income Tax Act, No 58 of 1962 (‘the Act’). Instead of determining the income of such persons and computing tax thereon at the applicable rates of tax, these provisions lay down a flat rate of tax of 15% to be applied to all amounts received by the non-resident entertainer or sportsperson for activities exercised in South Africa.
Under the provisions of section 47D any South African resident who is liable to pay these amounts to the non-resident entertainer or sportsperson is obliged to withhold tax at the rate of 15%. Once it is determined that the non-resident person is an entertainer or sportsperson then the mechanics of these provisions are relatively easy to work out. The difficulty often arises at the initial analysis, that is, whether the non-resident person is performing services as an entertainer or sportsperson at all.
When deciding an issue governed by the text of a statute, the careful lawyer trusts neither memory nor paraphrase but examines the very words of the statute. In this regard an entertainer or sportsperson is defined as follows:
In order to properly interpret this definition one needs to apply certainly commonly accepted rules of statutory interpretation in order to determine what it is that the text conveys.
Interpretation Rule #1: The word “includes” ordinarily introduces examples not an exhaustive list
In normal English usage, if a group “consists of” or “comprises” 30 entertainers, it contains precisely that number. If it “includes” 30 entertainers there may well be hundreds of other persons from all walks of life as well. That is, the word includes does not ordinarily introduce an exhaustive list, while comprise ordinarily does. Thus, the “entertainer or sportsperson” definition should be read as including but is not limited to the categories in (i), (ii) and (iii). Therefore, in order to understand the definition of entertainer or sportsperson the following words need to be analysed:
Interpretation Rule #2: Where general words follow a list of two or more things the general words apply only to persons or things of the same general kind or class specifically mentioned
The eiusdem generis principle of statutory interpretation applies when a drafter has tacked on a catchall phrase (such as category (iii) ‘a person who takes part in any other activity which is usually regarded as of an entertainment character’) at the end of an enumeration of specifics (‘entertainer’, ‘artiste’ and ‘musician’). The principle implies the addition of ‘similar’ after ‘other’ so that the catchall phrase will read ‘a person who takes part in any other [similar] activity which is usually regarded as of an entertainment character.’
The rationale for this principle is that when the specific terms all belong to an obvious and readily identifiable genus, one presumes that the drafter has that category in mind for the entire passage. Converesly, if the catchall phrase is given its broadest application, it will be overly broad and render the prior specific words superfluous.
The meaning of “entertainer”
Interpreters of legal texts should not be required to divine arcane nuances or to discover hidden meanings in statutory text. Words employed in a statute are to be given their plain, obvious and common sense meaning. Most common English words such as entertainer have a number of dictionary definitions.
- “A person whose job is amusing or interesting people, for example, by singing, telling jokes or dancing” - Oxford Advanced Learner’s Dictionary (6th ed., 2003); and
- “A person, such as a singer, dancer, or comedian, whose job is to entertain others” - Oxford Dictionary of English (2nd ed., 2003).
- “A person who entertains; a professional provider of amusement or entertainment” - Shorter Oxford Dictionary (6th ed., 2007); and
- “One who gives amusing performances professionally” - English Dictionary for South Africa (Pharos, 2011)
With the wording in the title (“entertainer”) and in the text (“an entertainer includes any person who performs . . . as [an] . . . artiste”), the Act seems to assume a strong connection and partial equivalence between entertainer and artiste. This connection also exists in the dictionary descriptions, but there are also differences as we will see from the definition of “artiste”.
The meaning of “artiste”
The following dictionaries have the following meanings for the word “artiste”:
- “An artist, especially an actor, singer, dancer, or other public performer” - Random House Webster’s Unabridged Dictionary (2d ed., Random House, New York, 1999);
- “A public performer who appeals to the aesthetic faculties, as a professional singer, dancer, etc.; also one who makes a ‘fine art’ of his employment, as an artistic cook, hairdresser, etc.” - Oxford English Dictionary (2nd ed., 1989);
- “Professional performer, especially a singer or dancer” - Concise Oxford Dictionary (9th ed., Clarendon Press, Oxford, 1995);
- “A professional entertainer such as a singer, a dancer or an actor” - Oxford Advanced Learner’s Dictionary (6th ed., 2003); and
- “A professional entertainer, especially a singer or dancer: cabaret artistes. Origin: early 19th cent.: from French (see Artist)” - Oxford Dictionary of English (2nd ed., 2003).
- “A person who practices one of the performing arts, an artiste, a performing artist, a professional singer, dancer, actor, etc” - Shorter Oxford English Dictionary (6th ed., 2007); and
- “A person who performs in a theatre, circus, etc” - English Dictionary for South Africa (Pharos, 2011)
The difference between the word “artist”, and “artiste” is quite interesting. The term ‘artist’ has a broader meaning, according to most of the dictionaries, and covers those who create works of art, such as painters and sculptors. The word “artiste” appears to be restricted to the performing arts. The word “entertainer” seems to cover the lighter versions of the performing arts, while the word “artiste” seems to cover the more serious expressions of performing arts, such as classical dance, music, theatre and opera.
While the dictionary explanations are very informative, it is also necessary to consider applicable case law so that one arrives at a complete definition of the words “entertainer” and “artiste”.
The decision in Canada in Cheek v The Queen (2002 DTC 1283 (Tax Court of Canada)) that was reached on 31 January 2002 is very interesting and particularly relevant. Under discussion was whether a “radio broadcaster” of baseball games would fall under Article XVI (Artistes and Athletes) of the 1980 Canada–United States Income Tax Convention. The radio broadcaster in question, Thomas Cheek, had been the commentator of the Toronto Blue Jays at home and away games since 1977, together with a partner-commentator. The parties agreed that Thomas Cheek was resident in the United States, was not an employee and – surprisingly – did not have a fixed base in Canada that would have made him taxable under Article XIV (Independent Personal Services). The only question that remained before the court was whether “the voice of the Blue Jays” was a “radio artiste”, who had to fall under Article XVI of the treaty.
In a baseball game of three hours, only 16-18 minutes are actual “motion”, the rest is “down time”. The challenge facing the broadcaster is to hold the attention of the radio audience, even when there is no activity on the field. He needs to know a lot about statistics, players, coaches and any other prominent persons connected with the game, and is expected to fill the gaps with colourful commentary about anything happening. The court stated that professional sports in itself is entertaining, but doubted whether the broadcaster could be seen as an entertainer, that is, as a “radio artiste”, such as for example the late Bing Crosby. The baseball fan who turns on the radio to hear a particular baseball game wants to know how the players are performing on the field. The broadcaster may be able to hold the attention of the fan with his “down time” commentary but he is not the reason why the fan turns on the radio. Therefore the court decided that Thomas Cheek was not a radio artiste, although he was a very skilful and experienced radio journalist.
The meaning of “takes part in any type of sport”
The activities of a sportsperson do not include only the appearance in a sports event but also, for example, advertising or interviews that are directly or indirectly related to such an appearance. Merely reporting or commenting on a sports event in which the reporter does not himself participate is not an activity of a person as an entertainer or sportsperson. Thus, the fee that a former sportsperson would earn for offering comments during the broadcast of a sports event in which he does not participate would not be covered by the withholding tax since the sportsperson is not taking part in any sport.
The meaning of “takes part in any other [similar] activity which is usually regarded as of an entertainment character”
The “euisdem generis” principle asserts that a general or generic phrase at the end of a list (“any other activity”) is limited to the same type of things that are found in the specific list (entertainer, artiste, musician). Since these words entails some sort of creative effort, that is, a performance, it follows that the catchall phrase should be limited to similar activities, artistic, musical or sporting performances which are entertaining (i.e. bring pleasure, diversion and amusement).
Dick Molenaar, an authoritative writer on this issue, compiled two lists of persons, “artistes” and “non-artistes” which provides a very useful distinction between these two terms. This list serves as a useful guide for the purpose of interpreting this requirement.
On the basis of the aforegoing it is concluded that a retired or non-retired sportsperson that provides tv commentary or expert analysis on a sports match is, regardless of how entertaining he might be, not an entertainer for the purpose of the Act.
Mansoor Parker - Executive