` Article 17-75-
with no abuse of the tax system either intended or realized. On
the other hand, the "employer" may, for example, be a company
established and owned by the performer, which is merely acting as
the nominal income recipient in respect of the remuneration for
the performance (a “star company”). The performer may act as an
"employee," receive a modest salary, and arrange to receive the
remainder of the income from his performance in another form or
at a later time. In such case, absent the provisions of
paragraph 2, the income arguably could escape host-country tax
because it earns business profits but has no permanent
establishment in that country. The performer may largely or
entirely escape host-country tax by receiving only a small salary
in the year the services are performed, perhaps small enough to
place him below the dollar threshold in paragraph 1. The
performer might arrange to receive further payments in a later
year, when he is not subject to host-country tax, perhaps as
deferred salary payments, dividends or liquidating distributions.
Paragraph 2 seeks to prevent this type of abuse while at the
same time protecting the taxpayers' rights to the benefits of the
Convention when there is a legitimate employee-employer relation-
ship between the performer and the person providing his services.
Under paragraph 2, when the income accrues to a person other than
the performer, and the performer or related persons participate,
directly or indirectly, in the receipts or profits of that other
person, the income may be taxed in the Contracting State where
the performer's services are exercised, without regard to the
provisions of the Convention concerning business profits (Article
7) or independent personal services (Article 14). Thus, even if
the "employer" has no permanent establishment or fixed base in
the host country, its income may be subject to tax there under
the provisions of paragraph 2. Taxation under paragraph 2 is on
the person providing the services of the performer. This
paragraph does not affect the rules of paragraph 1, which apply
to the performer himself. The income taxable by virtue of
paragraph 2 is reduced to the extent of salary payments to the
performer, which fall under paragraph 1.
For purposes of paragraph 2, income is deemed to accrue to
another person (i.e., the person providing the services of the
performer) if that other person has control over, or the right to
receive, gross income in respect of the services of the perform-
er. Direct or indirect participation in the profits of a person
may include, but is not limited to, the accrual or receipt of
deferred remuneration, bonuses, fees, dividends, partnership
income or other income or distributions.
Paragraph 2 does not apply if it is established that neither