From Likes to Taxes: Do online influencers qualify as entertainers under Article 17 of the OECD Model Convention?

Introduction

Social media platforms have transformed the way individuals consume and engage with content, giving rise to a new brand of celebrity: “The social media influencers”, with their ability to captivate and amass massive followers, have become powerful figures in the digital realm by creating content on social media platforms. According to recent studies, as of 2021, the number of social media users worldwide has surpassed 4.4 billion, with the average person spending over 2 hours and 25 minutes per day on social media platforms.² Consequently, the influence and reach of social media influencers have skyrocketed, leading to lucrative opportunities for monetizing their online presence.

In the digital landscape, social media influencers have become key players in the marketing and advertising industry. Brands and companies increasingly recognize the value of partnering with influencers to promote their products or services. In fact, a survey revealed that 89% of the marketers consider influencer marketing to be effective.³ From a mere $1.7 billion at the time of this site’s beginning in 2016, influencer marketing grew to have an estimated market size of $16.4 billion in 2022. Furthermore, this is expected to jump further by 29% to an estimated $21.1 billion in 2023.⁴

As a result, many of these influencers earn significant amounts of money through sponsorships, endorsements, and advertising deals.

However, the question remains whether social media influencers should be considered as “entertainers” for taxation purposes, as outlined in Article 17 of the OECD Model Convention⁵ (‘OECD MC’). If an affirmative view is taken, the source state shall also be granted taxing rights under Article 17. However, if a view is taken that social media influencers do not qualify as entertainers then the case falls outside the gambit of Article 17, and hence provisions of other Articles such as Article 7: Business Income, Article 21: Other income, etc. need to be considered.

This is an evolving area of the entertainment industry and there are multiple perspectives for the classification of social media influencers under various Articles of the OECD MC. The Author’s opinion favours the view that social media influencers should be classified as entertainers and this article aims to present positive arguments in support of this stance.

Influencers – Who are they?

“The term influencer refers to an individual or a group of individuals who built their own audience through social media platforms.”⁶ Many influencers have built their following through their unique personalities, perspectives, and creative talents. They often collaborate with brands and businesses to promote products or services to their audience. Influencers have become a valuable marketing tool for brands and businesses looking to reach new audiences and drive sales. As a result, many influencers have turned their social media presence into a full-time career, earning income through brand partnerships, sponsorships, advertising, and other revenue streams.

Basis the nature of content and audience, influencers can be categorized into four broad typologies:

What is the controversy?

The controversy surrounding the classification of social media influencers as “entertainers” for taxation purposes arises due to the complex nature of their international activities. To illustrate this issue, let us consider an example:

This example highlights the complex web of international taxation issues that can arise when taxing social media influencers. It brings into question which country has the rightful claim to tax the income earned by influencers, considering factors such as residency, source of income, and where the performance or content creation occurs. To solve one part of the complexity, in the next para, Article 17 of the OECD MC and its implications on the taxation of social media influencers have been discussed.

Article 17 of the OECD Model Convention

Article 17 of the OECD MC which deals with the taxation of Entertainers and Sportspersons, is reproduced below:¹¹

Thus, Article 17 of the OECD MC deals with the allocation of taxing rights for non-resident entertainers and sportspersons. It specifies that the source state has taxing rights over the income from a performance in the source state.¹² The primary objective of Article 17 is to prevent non or under-taxation of international entertainers’ income due to inefficiencies in the exchange of information between states.¹³ India, in its tax treaties with other nations, has generally adopted a similar Article to tax income earned by such entertainers.

The term “entertainer” is not exhaustively defined in the OECD MC. However, Article 17(1) provides some illustrative examples of which professions should be covered by the term, namely “theatre, motion picture, radio or television artiste”.¹⁴ Further, the Commentary on Article 17 of the OECD MC contains some useful pointers regarding the interpretation of the terms “entertainer” and “sportsperson”.¹⁵ In particular, it indicates that both the terms presuppose the existence of the following two conditions:

1. Public performance: the performance of the entertainer or sportsperson must be public.
2. Entertaining: the performance must have an entertaining character.¹⁶

Further, it is important to note that, “it is the character of the performance (on a stand-alone basis!) that makes a person an entertainer or a sportsperson”.¹⁷ Having said that, it is critical to understand the role of influencers and whether they satisfy the conditions prescribed under Article 17 of the OECD MC.

Arguments in favour of Article 17

In the below paragraphs, the author has analysed the criteria as per the OECD MC:

1. Public Performance

The term “public” in the context of Article 17 of the OECD MC includes both direct and indirect publicity, such as through radio, television, and online media. Therefore, a performance is considered “public” under this article even if the relevant audience is not physically present but can access the performance virtually, either live or with a time delay.¹⁸ Therefore, basis the same, even if the influencers create and share their content, the same could be classified as a public performance.

2. Entertaining Nature

The Commentary attempts to define the scope of the term “entertainer” and provides three potential distinctions as follows:

1. Between entertainment and educational/informational activities: visiting conference speakers are excluded from the definition.
2. Between entertainment and presentational/promotional activities: models are excluded when presenting clothes at a photo shoot or fashion show.
3. Between entertainment and production/technical activities: administrative or support staff such as cameramen, producers, film directors, choreographers, technical staff, and road crew for a pop group are excluded.¹⁹

Based on the three possible distinctions for the scope of an “entertainer” described in the above paragraph, in the paragraphs below it is analysed whether an influencer could be considered as an entertainer.

Influencers, who create content such as videos, photos, and stories to entertain their followers, share several characteristics with traditional entertainers. They create content that is similar to traditional media, using storytelling, humour, and visual elements to capture the audience’s attention and provide entertainment value. Influencers have a significant fans following who actively seek out their content, indicating that their content is considered valuable and entertaining. They spend time developing ideas for their content, scripting and planning their videos, and editing their posts, similar to traditional entertainers who create live performances or recorded media.

Moreover, influencers often partner with brands to promote products or services to their audience, indicating that they have the potential to influence consumer behaviour and drive sales, similar to traditional entertainers who endorse products. In addition, influencers create content that is designed to evoke emotions such as happiness, excitement, inspiration, and humour, similar to traditional entertainers who aim to elicit emotions through their performances or media. They provide a unique perspective or experience that is valuable to their audience, such as travel influencers who provide insights into different cultures and lifestyles or beauty influencers who offer tutorials on makeup application. Therefore, the basic nature of such content is to engage or entertain the audience.

Some influencers engage in public speaking and participate in live events, such as meet-and-greets or speaking engagements, providing an opportunity to connect with their audience in a live setting, similar to traditional entertainers who perform live for their fans. Influencers have a loyal fans following who support their work and often express their support through comments, likes, shares, and other forms of engagement. Finally, influencers often collaborate with other content creators, such as other influencers, photographers, or videographers, to produce their content, similar to traditional entertainers who collaborate with other artists to create new works of art.

3. User Point of View

Influencer content is often created with the primary goal of promotion or advertising, but it is important to acknowledge that entertainment is a key reason why audiences watch influencer content. Determining the entertaining character of an activity should take into account the perspective of the audience, and the audience is integral to the application of Article 17.²⁰ This is also supported by the decision of the Tax Court of Canada.²¹

However, we should consider that influencer content is a new form of entertainment for people. The attention span of the audience has fallen short and provoking content has become more engaging. Viewers watch influencer content for entertainment purposes, similar to traditional entertainment like movies or live performances. Additionally, many influencers offer an escape or distraction from reality, just like traditional entertainment. Travel influencers, for example, showcase exotic destinations and experiences, providing viewers with a break from their everyday life. Moreover, influencers offer a form of personal connection and interaction with their audience, using live streams and Q&A sessions which provide them with the opportunity to engage with their viewers in real-time, while relatable content, authenticity, creativity, lifestyle, interactivity, and niche appeal all contribute to the entertaining nature of influencer content.

Thus, although influencers may be promoting or advertising products, entertainment remains the primary reason why audiences view their content. Even if a company pays an influencer for exposure or reviews of its products, the content must remain entertaining to attract a wider audience. In contrast to traditional ads on social media platforms, which are often skipped after just a few seconds, influencer content receives significant engagement and views. This suggests that the content being produced by influencers is not solely for promotional purposes but rather provides entertainment value to their audience. The ability of influencers to capture and retain the attention of their audience is a testament to the entertaining nature of their content.

Judicial Pronouncements and Views of Academic Scholars

Reliance can also be placed on the Austrian Verwaltungsgerichtshof (Supreme Administrative Court) which decided in 2015 that the performance of the “party-girl” at a public relations event at an Austrian ski resort in Ischgl had an entertaining character, and therefore the party girl earned the income in the capacity of an entertainer.²² The court rejected the argument that the performance served an advertising purpose. The court also noted that the public did not come to Ischgl because of the product advertising but rather to see their favourite party-girl live, and therefore the event had an entertaining character.

Academic scholars are divided on this account. Some scholars conclude that influencers should fall within the personal scope of Article 17 of the OECD MC if their activities have entertaining content.²³ “Activities such as writing a travel blog, posting a photo or a tweet to promote a brand are not activities with a performance nature and have no entertainment character behind them. However, creating a video (where the background music is crucial) or broadcasting a live video to interact with followers may qualify as an activity of entertainment nature.”²⁴ The classification of social media influencers as performers under Article 17 of the OECD MC Convention is complex and requires a case-by-case assessment based on factors such as the content they create and how it is published, but influencers who livestream or publish videos online with promotional content that includes entertaining elements are likely to be covered under the definition of an entertainer.²⁵

“There is now an entertainment character in activities that were not as heavily present or did not exist years ago. One cannot simply disqualify a person as an “entertainer” based on the old concept of entertainment” and countries should consider this as a new form of entertainment and be willing to classify such influencers as “entertainers.”²⁶

Concluding Thoughts

“Social media is not just a spoke on the wheel of marketing. It’s becoming the way entire bicycles are built.”²⁷ It is evident that the area of social media influencers and their taxation under Article 17 of the OECD MC is still evolving. However, there are good arguments to cover the influencers as “entertainers”. While the examples discussed in this analysis primarily focus on influencers who blend promotional and entertaining activities, there may be certain influencers in the “snoopers” or “informers” category whose content is clearly not entertaining. Therefore, to obtain legal certainty and prevent double taxation or non-taxation, it is recommended that the OECD provides additional guidance and considers potential modifications to Article 17 to cover the new-age influencers as entertainers. This will ensure clarity and consistency in the taxation of social media influencers across jurisdictions.

Furthermore, this article has primarily focused on presenting positive arguments in favour of covering social media influencers as entertainers under Article 17 of the OECD MC. However, this is a dynamic field and thus it would be interesting to also weigh the counterarguments to gain a more comprehensive understanding of the potential challenges and implications associated with the taxation of social media influencers in the international context. Indeed, administrative and procedural compliance complexities should also be considered when addressing this emerging tax issue.