Taxation for Indian Premier League

Subject:
Direct and Indirect Taxes

Submitted By: Roll No:

Nikhil Budhkar 4
Gautam Choudhary 5
For now, you won’t have to pay more to watch an Indian
Premier League (IPL) match at Wankhede or any other stadium in the
state.

The state’s decision to charge an entertainment tax between 20 and 25

per cent on T-20 matches organized by the IPL has been suspended as
the cabinet is in split over a decision to tax cricket matches.

On Thursday, state finance minister Sunil Tatkare from the

Nationalist Congress Party, said the decision to levy tax was
withdrawn as the cricket fan would have to pay this burden by
coughing up more for the tickets.

However, revenue minister Narayan Rane, whose department

proposed the levy told Hindustan Times that no decision had been
taken so far on the issue.
“During the last cabinet, we did not confirm the minutes and had kept
the decision to levy the tax pending. We still have to deliberate on
this. The tax has not been withdrawn so far,” said Rane. The state
government has announced that it would levy tax on the total revenue
generated from ticket sales in its cabinet meeting in January.
Announcing the tax, Chief Minister Ashok Chavan had said, “IPL is
more entertainment and business than sports. We are not taxing test
matches.”

Sources said NCP chief Sharad Pawar did not want the state to levy
the tax since it could have an adverse impact on ticket sales and hence
affect revenues earned by the franchisees.

The backtracking on this decision will embarrass Chavan further. He

is already in a tight spot over Shiv Sena’s agitation against actor Shah
Rukh Khan’s movie My Name Is Khan.
The state has been looking at various ways to mop up funds since its
coffers are empty and had decided to levy a tax on IPL matches,
internet protocol TV and even pubs and discotheques playing music.
Twenty20, cricket's latest format is making waves in India through the
Indian Premier League. A huge noisy crowd, film stars rooting for
their own teams and cheerleaders are reminders of the league's
resounding success.
So with everyone sharing the spoils, how can one expect the Income
Tax department to miss the party?
The first target in their sight is the foreign players. The I-T
Department has now asked BCCI to furnish details of the tax
deductions made while making payments to these players.
The I-T Department and the BCCI have a long history of dispute on
taxation issues. And even as BCCI is busy milking the IPL cash cow,
the I-T Department is determined to extract its pound of flesh with
what it feels is a purely commercial business venture and not just
cricket.
In its notice served to BCCI, the I-T Department has asked BCCI to
clarify whether TDS at 11.33 per cent has been deducted before
releasing the payment. They have also said that since the contract is a
long term contract of three years, why should the applicable tax slabs
prevailing in the country not be applied?
This demand is supported by tax experts.
Former Income Tax Commissioner, B D Gupta says, "There is no
exemption. Whatever money they make, they have to pay 11 per cent
TDS and after that, they also have to file their income tax returns."
The BCCI is likely to contest this claim on the grounds that the IPL is
a short-term venture and does not amount to employment.
Meanwhile the Service Tax Department is also investigating whether
any of the contracts signed between BCCI and the various franchisees
come under the service tax net or not.

The Indian Premier League (IPL) matches till date have attracted a lot
of media attention, great for television viewership and high attendance
in cricket stadia. Millions of dollars have been spent by the franchise
owners to attract overseas cricket stars. Recent press reports indicate
that the tax department has issued notices to the entities owning some
of the teams asking them why withholding tax should not be levied in
relation to the payment to overseas players. This article broadly
examines the issues.

IPL has attracted cricketing stars from countries such as New

Zealand, Australia, South Africa, etc. India has signed double tax
avoidance agreements with these countries, and assuming that the
overseas cricketers playing in IPL are tax residents of their home
country, they could take benefits of the respective tax treaty. The tax
treaties executed by India contain a specific article dealing with
taxation of “entertainers and athletes/sportspersons”. The tax treaty
executed by India with countries such as Australia, New Zealand and
Sri Lanka specifies taxability of “athletes”; however, certain tax
treaties executed with countries such as South Africa specify the
taxability of “sportspersons”.

Given that certain tax treaties executed by India use the word athlete,
it seems that in the context of overseas cricketers from such countries,
a possible contention could be raised that cricketers are not athletes
and hence the relevant article dealing with athletes should not apply;
if that does not apply, which provision would? The answer could be
an article called Independent Personal Services, which requires (to
attract taxability) either a fixed base in the country where services are
rendered or a stay for a particular period during the year, which is 183
days in a year in the tax treaty with Australia, and 120 or 183 days
during a 12-month period in the case of Sri Lanka and New Zealand,
respectively. The implication is that if this view is possible, then the
cricketers would be taxable only if they cross the threshold number of
days.

As such, Independent Personal Services usually covers professional

services and other independent activities of a similar nature;
professional services cover activities such as those of doctors, lawyers
etc. Hence, cricketers being sought to be roped in even in this article
is a stretch.
It must also be pointed out that the commentary/report in relation to
the Organization of Economic Cooperation and Development
(OECD) model tax convention seems to indicate that the article
relating to athletes/sportspersons should cover sportspersons in the
broad sense of the word and is not restricted to what are traditionally
thought of as athletic events (for instance, running) and should also
cover, for example footballers, golfers, cricketers, and tennis players
as well as racing drivers. It must equally be pointed out that India is
not a member of the OECD, although it has got observer status.

The article relating to taxation of “entertainer and

athletes/sportspersons” inter alia provides that income derived by an
athlete/sportsperson from his or her “personal activities” would be
taxed in the state where these are performed. Further, the article
provides that where such income accrues not to the
athlete/sportsperson but to another person, the income would still be
taxed where the activities are performed. As per the OECD
commentary, income of the athlete/sportsperson includes not only
fees for the actual sporting activities but also includes in general
advertising, sponsorship income, etc., which is directly or indirectly
related to the activity. Accordingly, match fee income, winnings from
a tournament, or endorsements related to sporting activities, would be
taxable in the country where such activities are performed.

The provisions of the article dealing with taxation of “artists and

sportspersons” in a tax treaty supersede the provisions of the article
relating to business profits, and articles relating to independent and
dependent personal services. However, the tax treaties do not provide
for the basis of computation of income and hence the same would be
governed by the Income-tax Act, 1961. The taxation of international
sportsmen and athletes is specifically enshrined in the Act. Section
115BBA provides that income earned by non-resident sportsmen by

(i) participating in India in any game or sports,

(ii) Advertisements and

(iii) Contributing articles relating to the game or sports would be
subject to tax in India, the rate of tax being 11.33% on a
gross basis (inclusive of surcharge and education cess).

Given that the payment would be made to non-residents, the payer of

the income would be required to withhold taxes on these payments. A
failure could potentially result in disallowance of such expenditure
and consequential penal interest. In cases where the tax liability of the
non-resident sportsmen is borne by the payer, the tax would need to
be grossed up, resulting in an effective tax rate of 12.78%, resulting in
an increased cost of engaging such international sportsmen. From a
compliance standpoint, where appropriate tax has been withheld from
payments to the sportsmen and they have no other income chargeable;
they need not file an Indian tax return.

To summarize, in relation to those tax treaties where the word used is

not “sportsperson” but “athlete”, there seems to be a controversy as to
the taxability, and one view is that the cricketers are not covered by
that Article; but by the article dealing with Independent Personal
Services and, therefore, need to cross a threshold number of days. If
that is so, the withholding tax would not apply if such threshold is not
crossed. Clearly, a premier battle is on the cards!