Tax Treaty Characterization of Income Derived from Personality Rights (Part II)

"This study attempts to demonstrate the complexities involved in the characterization of payments related to the use of personality rights such as the name, the image, the voice of artistes and sportsmen. The article is divided in two parts. Part I deals with the tax treaty provisions concerning the characterization of these payments. The study focuses on the application of the artistes article and the royalty article in tax treaties, making evident the different trends followed by the judiciary and tax administrations. Part II develops possible solutions to properly address the problems presented in Part I. These solutions are based on the economic approach and the further development of the ideas regarding the distinction between active and passive income in DTCs. They come to the conclusion that if payments are received for activities mainly or predominantly intended to create an asset that can generate income in the future without substantial and/or predominant activities by the artistes or sportsmen as such, and can be commercialized by a third party, should be treated as passive income. This implies that income from personal rights may very well qualify as passive income and may have to be included in the royalty definition of DTCs."