Artists Exemption Questions and Answers

Introduction

This article sets out answers in relation to some frequently asked questions concerning the artists exemption scheme. The artists exemption scheme was recently discussed by the TALC Technical Sub-committee and it was agreed in that forum that taxpayers and practitioners would welcome an article outlining practical information regarding the scheme. The statutory basis for the artists exemption scheme is contained in Section 195 Taxes Consolidation Act 1997 which also authorises the making of Guidelines by the Minister for Arts, Heritage, Gaeltacht and the Islands and The Arts Council (with the consent of the Minister for Finance) for the purpose of interpreting Section 195.

Further details regarding the artists exemption scheme, including information about how and where to apply for the exemption and the text of the current Artists Exemption Guidelines, may be found in the Revenue booklet on the scheme which is available from Revenue offices and at www.revenue.ie. A list of useful contact numbers in relation to various aspects of the scheme is given at the end of this article.

What income is exempted under the Artists Exemption Scheme?

Artists exemption exempts from the charge to income tax the profits or gains arising to a painter, composer, sculptor, writer or playwright from the publication, production or sale of his/her work.

Who can claim artists exemption?

An application must be made to Revenue to establish if an individual falls within the category of taxpayers who can claim artists exemption. To claim artists exemption the individual must:

• Have produced a work or works which is an original and creative work or works in one of the following categories:
  1. a book or other writing
  2. a play
  3. a musical composition
  4. a painting or other like picture
  5. a sculpture
  which has received a determination from Revenue in respect of cultural or artistic merit,
  and
• Be either resident in the State and not resident elsewhere or ordinarily resident and domiciled in the State and not resident elsewhere.

Where should the application for artists exemption determination be sent?

Applications should be submitted to:

Office of the Revenue Commissioners,
Direct Taxes: Administration (Artists Exemption),
Block 8-10,
Dublin Castle,
Dublin 2,
Ireland.

Tel: 353 1 6475000
Ext. 48683; 48684 and 24106
Fax: 353 1 6799287
Internet: www.revenue.ie
e-mail: direct-taxes-admin@revenue.ie

If the determination is granted, how does the individual claim exemption from income tax on the profits or gains from the work involved?

The exemption should be claimed on the return of income submitted annually under the self-assessment system to the Inspector of Taxes. PAYE taxpayers must also make this return. Despite having obtained the artists exemption determination, the individual is still obliged by law to include details of the exempted profits or gains on his/her annual return of income. Because this return is made under self-assessment, it is accepted on a non-judgmental basis by the Inspector of Taxes but, as with all self-assessment returns, it may be subjected to a verification audit by Revenue at a later date.

If the artists exemption determination is granted, does the individual need to apply in respect of all future works?

No - the determination covers both the original work submitted as well as any future work in the same category provided that this work comes within the Guidelines. However, a fresh application must be made to Revenue in respect of work produced in a different category. For example, if a determination is granted in respect of category (a) “a book or other writing” and subsequently the taxpayer writes a play, the play must be submitted for a determination in category (b) “a play”.

What claim form should be used to make the application?

Claim form 2 is the most commonly used form. A determination granted on the basis of this claim form will cover the particular work or works submitted with the claim as well as all future works in the same category provided that they come within the Guidelines.

The claim form requires an “RSI number” - what is this and how can it be obtained?

The RSI number has now been replaced by the PPS number. The Personal Public Service Number (PPS Number) is the citizen’s unique reference number for all dealings with the Irish Public Service, including social welfare, tax, education and health services eligibility. If the individual already has an RSI number it automatically becomes his/her PPS number. If the individual does not have a PPS number he/she should contact the local Social Welfare Office.

If an individual is audited in relation to artists exemption, what would the audit focus on?

The audit would focus on whether:

• The profits or gains on which artists exemption was being claimed are derived from works in respect of which a determination has been granted, and
• Any later works in the same category as the work(s) which received the determination - the legislation provides that any later work(s) in the same category as the originally-determined works are also entitled to the exemption provided that they meet the criteria set out in the Guidelines.

It should be noted that, independent of any audit, an individual may apply to Revenue either directly or via the expression of doubt facility for a determination in respect of any later works.

What happens if the determination is refused?

If a determination is refused, the taxpayer may:

• Re-submit the claim, perhaps with additional supporting documentation, for further consideration by Revenue, or
• Appeal Revenue’s failure to make the determination to the Appeal Commissioners.

The Appeal Commissioners will hear the case and the appellant will be permitted to bring formal evidence and witnesses in support of the claim and can be represented by a lawyer or tax practitioner. The decision of the Appeal Commissioners can be appealed by way of submission to the High Court of a case stated on a point of law.

Does the exemption also extend to PRSI and levies?

No - PRSI and levies are payable on the profits or gains derived from a work or works which have received a determination. This is a matter for the Department of Social, Community and Family Affairs and the contact point in that Department is:

Department of Social, Community and Family Affairs,
Cork Road,
Waterford.

Tel: 051-356002
Fax: 051-877838
e-mail: selfemployment@eircom.net

The Artists Exemption Guidelines refer to certain categories of work such as a book or other writing, a play etc. - if the work does not fall into those categories, can artists exemption apply?

No - the work must come within one of the five categories referred to. It should be noted that the categories are provided for by the artists exemption legislation and not merely the Guidelines.

What is the effect of Appendix A of the Guidelines?

Part 9 of the Guidelines provides, inter alia, that a non-fiction book or other writing will be considered original and creative only if it comes within one of the categories cited in Appendix A of the Guidelines. The categories cited in Appendix A are the terms of reference of the following bodies:

• The Arts Council
• The National Heritage Council
• The National Archives Advisory Council.

The effect of Appendix A is to establish, in the case of non-fiction books and other writings, a minimum threshold for deciding whether or not such a book or other writing is original and creative. In essence, where a book or other writing does not, as a minimum, come within the terms of reference of the bodies referred to in Appendix A, it cannot be considered original and creative.

Are Advance Royalties exempt from tax?

Yes - in certain circumstances. Where an individual receives advance royalties which are attributable to the subsequent publication of a book or other writing, a claim must be lodged with Revenue in the tax year in which the royalties are paid if the royalties are to be exempt. Confirmation from the publisher that the book will be published must accompany the claim.

Where a claim is received in the tax year in which the advance is received, but where a determination has not been granted, any tax liability arising on the advance must be paid. If a determination is subsequently granted, the Inspector of Taxes will review the taxpayer’s liability and make any appropriate refund if tax has been overpaid.

Advance royalties paid before the year of claim are not exempt.

Can non-residents avail of Artists Exemption?

No - Claimants for artists exemption must be resident, or ordinarily resident and domiciled, in the State and not resident elsewhere for tax purposes. However, Revenue are prepared to give advance opinions regarding the exemption to claimants resident abroad. If these claimants receive a favourable advance opinion, they are given a formal determination in respect of artists exemption when they satisfy the residence criteria and submit a claim.

When the individual becomes resident he/she must submit a claim with evidence of residency, i.e. copy of lease, evidence of house purchase or rent etc. The individual must also apply to the local Social Welfare Office for a PPS No. A copy of leaflet RES 1 i.e. Explanatory leaflet relating to residence in Ireland for tax purposes is issued with each non-resident application form.

Practitioners should request a supply of the new information booklet and the new claim form 2 from Revenue (see address details over). The new forms are salmon coloured and the information booklet is terracotta on white. The old forms should be disposed of.

What is the position in relation to mechanical royalties paid under a recording contract?

This issue was discussed at a recent TALC Technical Sub-Committee meeting. Most of the sub-group’s discussions focused on whether mechanical royalties - i.e. royalties paid in respect of the studio work leading to the final recording of a CD/tape - could qualify for artists exemption as a musical composition within the meaning of section 195 TCA 1997. It was noted that an initial musical composition either composed by a singer-songwriter or a third party could be altered - in some cases very significantly - by studio work. Revenue agreed in principle that mechanical royalties could qualify for artists exemption if they derived from a musical composition within the meaning of section 195 which was granted a determination under section 195 and which was different from the initial musical composition. Revenue also stated, however, that

• it would be difficult both to envisage the alteration in the musical composition taking place and, if it did take place, to identify it musicalogically and practically,
  and
• there might have to be apportionment of the recording royalty between the composition and recording elements in order to ensure that artists exemption was not granted in respect of any income derived from performance.

Practitioners felt that significant alterations in the initial musical composition do take place in practice.

Submissions from readers on this whole issue would be welcome and can be submitted to Direct Taxes: Administration (Artists Exemption) - see address over.

Useful Contact Numbers

Claim Forms and Information

Office of the Revenue Commissioners,
Direct Taxes: Administration (Artists Exemption),
Blocks 8 - 10,
Dublin Castle,
Dublin 2,
Ireland.

Tel: 353 1 6475000
Ext. 48683; 48684 and 24106
Fax: 353 1 6799287

Internet: www.revenue.ie
e-mail: direct-taxes-admin@revenue.ie

PRSI

Department of Social, Community and Family Affairs,
Cork Road,
Waterford.

Tel: 051-356002
Fax: 051-877838

e-mail: selfemployment@eircom.net

Appeals

Office of the Appeal Commissioners,
8th Floor,
Fitzwilton House,
Wilton Place,
Dublin 2.

Tel: 01-6624530
Fax: 01-6611892