A complex and opaque system of withholding taxes across the EU is making touring around Europe “financially precarious”, in particular for small to mid-sized artists, according to Jess Partridge, the Executive Director of EMMA, the European Music Managers Alliance. The rules on who pays withholding taxes on tours are “unfair and discriminatory”, she adds, and put European artists at a disadvantage to their US-based counterparts when touring in the EU.
A letter co-signed by a collection of pan-European artist and live aligned trade bodies spells out the issue in more detail, and calls for the EU to intervene to regularise matters.
The letter explains that while some EU member states - including Denmark, Hungary, Ireland and the Netherlands - charge no withholding tax at all on foreign artists - others have differing rules. Whether artists pay withholding taxes depends on their country of origin, and the country in which they are performing, and relies on a complex web of state-to-state tax treaties, even when both the artist’s home country and the country in which they are performing are EU member states.
Withholding taxes are designed primarily to ensure that tax is paid at source when foreigners earn money within a country, rather than waiting for recipients to pay tax on income further down the line.
In particular, in the context of touring artists, a “pay-as-you-go” tax collection mechanism makes it easier for tax authorities to ensure that taxes are paid, by collecting sums due via a local business employing a foreign performer.
However, this “collect first, ask questions later” taxation regime is often considered a hangover from a pre-digital era, when tax authorities had much less visibility or control over tracking foreign earners, and manual processing of documentation meant long delays in identifying potential non-compliance.
Even though that withholding tax can sometimes be reclaimed by the performer, this is an “arduous, often impossible task that lacks uniformity”, says the letter, adding that some countries allow artists to file a local tax return to have sums deducted as withholding tax released, while others do not.
The matter is further compounded by the fact that the United States has individual tax treaties with most EU states, under which artists touring from the US are able to earn up to $20,000 or €20,000 per artist per year in each EU country in which they are touring without paying any withholding tax at all.
“We believe the European Parliament has the power to alleviate these challenges”, says Partridge, adding that it is “imperative” that the “present regime of withholding taxes is overhauled” to help promote greater cultural diversity, and giving European artists “parity with their US counterparts”.
Like almost anything that concerns international taxation, the rules about how withholding taxes are applied, what deductions are allowed, and who must pay are hugely complex.
Notably, because there is no single cross-European taxation framework, the rules about who is taxed, how the tax is applied, whether it can be reclaimed and how it is calculated vary from country to country, meaning that two artists, each based in a different country but playing a live show for the same fee in the same third country, could be subject to different withholding taxes.
There’s a further - and significant - problem for touring artists, in that withholding tax is “most often a tax deducted as a percentage of an artist’s gross payment”, meaning that the tax is applied before any costs relating to the show are made.
This means that if an artist receives a gross fee of €10,000 but has costs of €8,000 to deliver the live show, the tax would be applied on the full €10,000 fee, rather than the €2,000 profit. Indeed, if the show simply breaks even, the withholding tax would often still apply, pushing that show into a loss.
The letter, which is co-signed by EMMA, IAO, IMPALA, FIM, EMEE, LIVE, DMA and Liveurope, acknowledges that these complex direct taxation rules fall under the jurisdiction of individual EU member states, and aren’t decided by the European Union.
However, “the EU can argue for harmonisation”, it continues, and it could issue recommendations - as it has done on “withholding taxes on dividends, interest and royalties” that are made between EU member states.
This would “help member states develop more consistent rules about withholding tax reducing the burden on touring artists”, something that would “support the creativity, competitiveness and sustainability of European artists”.
Per Kviman, EMMA’s chair, says, “If we want European artists to compete on a global stage, then it is vital the European Parliament acts on this issue”, adding that the “immense cultural and economic impact” of Europe’s live music sector is “wholly dependent upon touring artists and musicians”, something that should not be “jeopardised by an outdated and discriminatory application of withholding taxes”.
“The current withholding tax system” is something that “penalises the smaller and emerging artists”, adds IMPALA’s Helen Smith, noting that artists at this level often “lack the financial resources and administrative support to navigate its complexities”.
This gives an “advantage to acts from certain areas of the world, at the expense of European talent”, she continues, and by addressing these barriers the EU has “a chance to empower our artists, strengthen the music ecosystem, and ensure Europe remains a competitive global hub for cultural diversity and innovation”.
Read the full letter here:
CMU
