Payment to Agents
Contracts for personal services of foreign artists frequently require that the presenter or other payer make payments to a U.S. or foreign manager or agent. In considering whether or not withholding is required, the payer must determine who the “beneficial owner” of the payment is. The beneficial owner is the person who is the owner of the income for tax purposes – the person who will benefit from owning the income. Thus, a person receiving income – such as an agent or manager – strictly to pass the payment on to another person (even if it is passing it on after deducting a commission) is not the beneficial owner of the income.
If the foreign artist is the beneficial owner of a payment made to an agent or manager, then the withholding must be handled similarly to a payment made directly to a foreign artist. If payment is made to a U.S. agent or manager and the foreign artist is the beneficial owner, the payer must still acquire the regular documentation from the foreign artist, that is, a Form 8233, in the case of an individual, or Form W-8BEN or W-8EXP in the case of a foreign business. If the payment is made to a foreign agent or manager and the foreign artist is the beneficial owner, the payer should acquire a Form W-8IMY, Certificate of Foreign Intermediary, from the foreign agent or manager, in addition to the documentation of the foreign artist (Form 8233, Form W-8BEN or W-8EXP).
Note that the 30% must be withheld only once. If a U.S. presenter pays a U.S. agent or manager for the services of a foreign artist, the presenter is required to withhold 30%. If the presenter withholds, the agent need not withhold. However, if the U.S. presenter fails to withhold, the U.S. agent is required to withhold 30% on its payment to the foreign artist. If no one in the U.S. withholds as required, both the U.S. presenter and the U.S. agent could be liable for the artist’s taxes. (Of course, the artist will also be liable, but it is much easier for the IRS to recover the taxes from a presenter or agent in the U.S. than it is from an artist who lives in a foreign country.)
Remember that each withholding agent will be held liable for the amount that should be withheld. To illustrate, assume that a particular foreign artist has a U.S. booking agent, and a U.S. presenter engages the artist through the agent. The fee for the artist’s services is $10,000, to be paid by the presenter to the agent, who will then deduct his commission and pay the artist. Assume that the presenter does pay the agent, who then pays the artist. No taxes are withheld, and the artist does not file a U.S. tax return or pay U.S. taxes. In this scenario, the presenter and the agent, as well as the artist, would be liable for the taxes that were not withheld from the artist’s fee – along with any interest or penalties that are due.
Many U.S. agents and managers have sought to reduce the amount withheld from their artists’ fees by having presenters make one check payable to the agent or manager for the agent’s or manager’s commission, and another check payable to the foreign artist for the remainder of the fee. The presenters will then deduct the 30% withholding only from the artist’s portion of the fee. Unfortunately, this arrangement does not comply with IRS withholding requirements. The agent’s or manager’s commission, even if paid to the agent or manager directly, is still subject to the 30% withholding requirement. This is because the commission is part of the fee that is earned by the foreign artist. The artist then pays the commission to the agent or manager from the fee (regardless of how many checks are cut and to whom they are payable). As with many other expenses, the value of this commission may be deducted from the artist’s taxable income when filing a tax return, and the artist will be reimbursed any tax that was withheld on the commission.