25 Dec 2007

Indian crickets to be taxed in Australia: Why the fuss?

Even before the tour of the Indian cricket team to Australia has begun, the hype has been all around. One particular news item which stuck me was that the Indian team would be taxed in Australia. The reasons that are cited relate to the change in income-tax laws in Australia which tax these fees. But then I do not understand why the fuss is all about. I will try to dealienate the income tax provisions and how they operate and that there is no reason for all this melodrama.

Firstly, the 'R' or 'Residence' test. These crickets going to Australia are no doubt Residents in terms of the Income Tax Act of 1961. Since they are performing in Australia, they would be subject to Indo-Australia Double Tax Convention. [click here for a full list of conventions to which India is a party] This Convention, notified by the Government of India in 1992, is based upon the OECD model which gives an alternative approach as regards income of sportsman.

The relevant provision of this Indo-Australia convention, Article XVII provides;

ARTICLE XVII - Entertainers - 1. Notwithstanding the provisions of Articles 14 and 15, income derived by residents of one of the Contracting States as entertainers, such as theatre, motion picture, radio or television artists, musicians and athletes, from their personal activities as such exercised in the other Contracting State, may be taxed in that other State.

It is clear from the above that in situations such as the present one, the country where the athlete (a term which includes sportsman and cricketers) performs may tax the income which arises to the athlete in respect of the performance in that country. So, Australia is legitimately entitled to tax the incomes of the Indian cricket team members for their performance and match fees in Australia. Since the Government of India has agreed to it, and that too more than a decade back, there is no reason for fuss now that income would be taxed in Australia.

Then there is another reason. Since the income would be taxed in Australia, in terms of the Indo-Australia Agreement, Indian tax authorities will not be entitled to tax the income received by the players in Australia as the same would otherwise amount to double taxation, which is categorically barred by the Agreement. In terms of Article XXIV of the same Agreement, when a Resident of India pays income tax in Australia, credit of such tax paid shall be allowed against the Income tax payable in India.

Therefore the situation is simple. If Indian cricketers pay tax in Australia, they will not pay tax in India. In any case they will have to pay tax in one country. It is no one's case that if Australia does not impose tax on them then they will not be liable to pay tax at all for their income would be taxable in India. It seems, naturally, that this hype is media-created without any rationale basis, just that there is a news item to fill the pages and slots.

No comments: