Cross Border Money Transfers and Taxes for Music Festivals.

A successful music festival entity regularly curates artists and uses contractors from other countries. For ambitious companies operating the same themed festival in another country can be very attractive. However, operating internationally with cross border payments between multiple individuals or companies can have significant implications for tax liabilities.

Every country has their own tax reporting system where they continually aim to collect the correct tax due from every individual or company, usually based on legal registration or an individual's residency. In addition, the increased rules and regulations regarding any significant sums being transferred over international borders can cause delays and other issues related to money laundering investigations.  How tax authorities in a particular country assess tax liabilities will depend on who receives the payment, where services are performed, and the legal relationship between entities.

Operating Internationally.
The most common cross border transactions are between festival entities who book artists from overseas to perform at their event. Organisers need to give extra attention to contracts, tax implications, invoice processing, and tax related documentation. Other key considerations are whether payments are being made from the festival entity to another entity registered overseas, like the artist's management company, or an individual artist directly. The tax residency of the artist will usually determine where they pay income tax, but this doesn't stop local tax being deducted at source (withholding tax). The most common set up for festival entities wishing to operate their event in different countries is to create a separate legal entity in each jurisdiction, rather than operating a subsidiary. The preferred route will depend on the local rules and what incentives are available if the funding is considered an investment. Some countries provide tax-free incentives for significant investment sums linked to local employment. The other factor for consideration is how can any profits be remitted back to the entity's home country.

Cross Border Payments.
A music festival may have to make cross border transactions for artist fees, technical contractors and royalties as well as potentially receiving funds from overseas sponsors, for example. Currency fluctuations can have a significant impact on the final amount received, and many businesses involved in cross border transactions use specialist agencies to minimise currency movements (FX hedging, forward contracts). For money to flow seamlessly between banks in different countries, it is essential that the festival entity creates a transparent audit trail of any transactions for future reference should tax authorities or financial regulators wish to conduct an audit.

Overseas Company Legal Status.
A festival entity entering a new territory will often partner with local specialist event management agencies who have local knowledge and connections to create a well-run festival. This still requires regular cross border payments which can get complex, and the simplest solution to maintain control is for the parent company to create a new legally registered company in the target country. There may be limitations on foreigner shareholder ownership, but it is often the simplest solution so that artists and contractors get paid locally covered by locally received ticket sales revenue. The financial operation of a new company in the target country will still be subject to the usual financial, tax, and audit processes but without the complexity of numerous cross-border transactions. Significant overseas investment in the creation of a new local company often attracts government support with reduced tax liabilities and favorable work permit arrangements, for example. Every country is different, and this needs careful consideration when deciding on the best fit location for a new version of a festival.

Tax Implications.
One of the most frustrating aspects of curating an artist from overseas is that tax authorities often withhold tax before the money is transferred overseas. The tax authorities do this because they default to a principle of imposing tax for artists performing in that country. It is up to the artist to demonstrate that their home country has a bilateral treaty where they will subsequently have to claim the withheld tax back in their home country (of residence). This can get incredibly complex and may take months or longer to get reimbursed as the situation often falls outside of the tax authority's normal processes and procedures. When curating an overseas artist, it is essential for organisers and the artist to clearly define potential tax liabilities to avoid any confusion when payments are due. Organisers and artists can refer to the OECD Model Tax Convention framework that can be used when negotiating contracts. All contracts should also specify whether an artist's payment is to be made net or gross, which can eliminate any confusion at a later date and takes account of potential withholding tax issues. For business-to-business invoicing and payments organisers should be aware that VAT tax liabilities may still be required as part of the invoicing process and cannot be excluded simply because it's a cross-border transaction.

For festival organisers planning their next event using a software management platform like Festival Pro gives them all the functionality they need manage every aspect of their event logistics. The guys who are responsible for this software have been in the front line of event management for many years and the features are built from that experience and are performance artists themselves. The Festival Pro platform is easy to use and has comprehensive features with specific modules for managing artists, contractors, venues/stages, vendors, volunteers, sponsors, guestlists, ticketing, site planning, cashless payments and contactless ordering.

Image by stevepb via Pixabay

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