The cost of a world-class performance

By: Tristan Lopez

THESE past few weeks, we have seen world-renowned performers regale us with their art. We had the likes of Ed Sheeran and Janet Jackson, to name a few, who came to the Philippines and entertained Filipinos and foreigners alike who bought tickets to their live performances. These foreign artists make bank every time they go on world tours; it makes you wonder if they are paying taxes in the Philippines.

Wonder no more. One can look at these performers as service providers who come to the Philippines to render personal service via the entertainment they provide. Consequently, they derive revenue and income from the service they render in the Philippines and are, therefore, subject to income tax and value-added tax (VAT).

Pertinent provisions of the 1997 Tax Code, as amended, essentially state that "...a non-resident alien who stays in the Philippines for an aggregate period not exceeding 180 days, in any calendar year, is subject to an income tax of 25 percent on his/her gross income derived from sources within the Philippines." Further, section 42 of the same Tax Code defines "income from service physically rendered in the Philippines" as among those income derived within the Philippines and should be subjected to income tax.

Applying the foregoing, performers who come to the Philippines and render entertainment service for a day or more (not exceeding 180 days) are subject to a final withholding income tax of 25 percent on their gross income.

Nevertheless, such income may be exempted from income tax if the foreign artist is a tax resident of a country with whom the Philippines has a double tax agreement (DTA). Our Tax Code grants exclusions from gross income, among which is provided in Section 32 (B)(5): "Income Exempt under Treaty — Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines."

Currently, the Philippines has a DTA in place with 43 countries, including the United States, the United Kingdom, and Northern Ireland. To avail of the treaty exemption, a request for confirmation (RFC) or a tax treaty relief application should be lodged with the Bureau of Internal Revenue–International Tax Affairs Division (BIR-ITAD) not later than April 30 of the following year when the income was paid or made payable, whichever comes first.

If the income payor (withholding agent) has already availed of the treaty exemption upon payment of the income to the foreign artist, an RFC should be submitted to the BIR-ITAD anytime during the year but not later than April 30 of the following year.

Submission of the RFC entails the following: the foreign artist is required to secure a Taxpayer Identification Number from the Revenue District Office 39 – South Quezon City, submit the duly accomplished BIR Form 0901 – S4 and submit other documentary requirements, including a tax residency certificate duly issued by the tax authority of his/her country of residence and a letter request. If warranted, the BIR-ITAD will issue the Certificate of Entitlement to Treaty Benefit confirming the applicability of the treaty exemption.

On top of the income tax, the foreign artist is subject to VAT of 12 percent on the gross receipt/gross income they derive from the service rendered in the Philippines. This VAT is due notwithstanding the presence of the DTA since the treaty only grants exemption from income tax and not business taxes, which include VAT. The 12 percent VAT is added to the payment made to the foreign artist and, in essence, added to the cost of the Philippine payor.

In the end, foreign artists are not the ones paying income taxes and VAT in the Philippines. Rather, the payors from the Philippines are the ones shouldering these costs, which explains the higher ticket price you have to pay to be able to watch these global superstars live.

As published in The Manila Times on 18 March 2024. The author is a Director with the Tax & Corporate Services group of Deloitte Philippines.