Influencers, e-sport players, and the tax consequences of their activities abroad
The transformation of the economy and society due to digital advancements, along with the increasing international mobility of individuals, are factors influencing the choices of many entrepreneurs and self-employed workers, including influencers and e-sport players. These new professional figures in the digital ecosystem may encounter interpretation issues in the application of tax rules when their activities are carried out in two or more countries.
This article is dedicated to influencers and e-sport players, as well as other professional profiles in the digital economy, such as sextertainers and edutainers. We aim to provide an introduction to the dynamics of international taxation concerning their activities, through the general principles of business income taxation and the role of international tax treaties.
Basic rules for business income taxation
Generally speaking, those working as influencers, e-sport players, sextertrainers, or edutainers operate as businesses rather than employees. This distinction is important for tax purposes, as individuals operating as sole proprietors are, in principle, subject to tax rules applicable to businesses.
The principle of business residence
In principle, business income is taxed in the country where the business has its registered office and carries out its activities, which we refer to as the business’s tax residence state. For example, income generated by the activities of an influencer who has registered their LLC in France and derived from videos shot exclusively in France will undoubtedly be taxable in France.
The concept of a “permanent establishment” or “fixed base”
The situation becomes more complex when the activity is also carried out in a country other than the business’s tax residence.
Imagine a Spanish influencer who comes to France to promote Spanish fashion brands during Fashion Week. If the influencer comes to France for a short period (a week) and does not establish a permanent organization, unless in special circumstances, their activity is not significant enough to justify taxation in France. Consequently, their business income would remain taxable only in Spain.
However, the situation changes if the influencer opens an office in France, used to manage collaborations with French brands on a continuous basis: this office could constitute what international taxation defines as a “permanent establishment” or “fixed base,” justifying the taxation of business income in a country like France, even if the business is registered and usually managed abroad.
The concepts of permanent establishment and fixed base are defined by two important rules contained in most “bilateral treaties against double taxation”: what are they? These treaties are agreements between two (or more) countries that aim to establish common rules for dividing taxes due on income generated from cross-border activities or situations.
The Organization for Economic Cooperation and Development (OECD) has formulated a Model Bilateral Treaty (the latest version is from 2017), which has inspired most of the treaties currently in force. For practical reasons, in this article, we will refer to the rules outlined in the Model to continue developing our arguments.
The relevant rules are as follows:
- Article 7: covers business income and provides that a business is taxable in the State where it has a permanent establishment for the activities carried out by it.
- Article 14: applies to sole proprietors and freelancers, stipulating that income is taxed in the entrepreneur’s State of residence unless the activity is carried out in another State through a fixed base.
When does an activity constitute a “permanent establishment” in France?
An interesting case for you: French tax law does not explicitly define the concept of a permanent establishment (a concept nonetheless defined by treaties signed by France) nor the concept of business activity conducted in France.
So how can we determine whether the activity carried out in France by an influencer, even for a limited period, qualifies as a permanent establishment or fixed base and thus generates taxable income in this country?
The permanent establishment in French domestic law is a concept developed through case law that refers to three different criteria that may characterize the exercise of a business activity in France:
- the existence in France of a structure with a permanent character and its own autonomy (factory, branch, sales outlet, etc.);
- the presence in France of employees conducting commercial activity on behalf of the business;
- the performance in France of operations constituting a complete business cycle, independent of other operations of the business.
French case law thus teaches us that a permanent establishment is established in France if the activity is carried out in this country with a certain stability and continuity, often through a complete business cycle. Tax treaties provide a definition, or rather a series of definitions, slightly different from the concept of a permanent establishment under French domestic law, but the general idea remains that the activity must not be occasional or sporadic.
Taxation of payments made from France
A fundamental point: in the example illustrated above, if, during Fashion Week, the influencer receives payments from clients operating in France (such as French fashion houses), these sums may be taxed in France regardless of the existence of a permanent establishment or fixed base.
Indeed, several French tax provisions, such as those provided for in Articles 182 A, 182 B, 182 B bis, and 182 C of the Code général des impôts, require the payer to withhold tax on payments to be made to a non-tax resident in France for services rendered in France.
Article 17 of the OECD Model: a special rule for artists and athletes
Article 17 of bilateral treaties introduces an important exception to the principles of Articles 7 and 14, allowing the source State to tax income earned by artists and athletes for activities performed within its territory. This is justified by the high international mobility of these professions, often associated with high incomes generated in short periods.
According to the OECD Commentary, Article 17 also applies to non-traditional entertainment activities, provided they contain an element of spectacle or performance. To determine whether Article 17 can be applied to influencers, e-sport players, sextertainers, or edutainers, it is important to analyze whether their activity is considered entertainment.
Application of Article 17: some practical cases
- Influencers: advertising activity or artistic performance?
In many cases, an influencer’s activity is limited to advertising promotion without elements of spectacle and would therefore not fall under Article 17. However, there are situations where an influencer could be considered a performing artist if their activities involve genuine entertainment.
For example, an influencer residing in China who participates in exclusive events in France, creating engaging and entertaining videos for the audience, could be considered an artist. If the activities posted on social media include elements of performance and entertainment, the resulting income may be taxable in France.
- E-sport players: digital athletes
E-sport players participate in international competitions and receive significant sponsorships. Although e-sport does not require traditional physical effort, the OECD Commentary recognizes that mental sports (e.g., chess) may fall under Article 17. The presence of a competitive and entertaining element for the audience may make this income taxable in the State where the events are held.
For example, an e-sport player residing in Canada who participates in a tournament in France could be subject to French taxation on income derived from their participation in the tournament.
- Sextertainers: adult performances and taxation
Sextertainers, who create interactive content for an online audience, can be viewed as performing artists. The European Court of Justice's Geelen ruling (8 May 2019 C-568/17) established that performances with erotic content constitute entertainment activities. Therefore, if a sextertrainer performs in France, the resulting income may be taxable in France under Article 17. For example, an American sextertrainer broadcasting live shows from a location in France may be subject to tax on income generated in France.
- Edutainers: education and entertainment
Edutainers, who offer educational content with an entertainment component, must be assessed based on the weight of entertainment compared to education. If the content is primarily educational, it does not fall under Article 17. However, if the performative aspect predominates, it may be considered entertainment and subject to taxation in the source State. For example, a British edutainer giving live science shows in France may see their income taxed in France if the spectacular and entertainment aspect is predominant.
Conclusions: why is this information crucial?
The increasing international mobility and the rise of digital nomadism make these tax rules more and more relevant. Furthermore, tax authorities now have greater visibility into the financial flows generated by the digital economy thanks to three key factors:
- Reporting obligations for digital platforms: platforms making payments to influencers, e-sport players, and other creators must report such transactions to tax authorities.
- Automatic information exchange: States regularly share information on cross-border income to detect potential tax evasion.
- Artificial intelligence: the use of advanced tools allows tax administrations to analyze and cross-check data more and more quickly.
For those in these professions, it is therefore essential to be informed of the applicable tax rules and, if necessary, seek assistance from tax experts. Being aware of these obligations avoids penalties and ensures compliant and smooth tax management. For further information and to receive personalized support, feel free to contact TaxLhab, where international tax experts will be happy to assist you.
