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BOLD BLOG Lesson (31).WITHHOLDING TAX

Posted by Bold n Boasy Entertainment on June 30, 2015 at 8:20 AM

This is a subject that deserves a book of its own, so it is not possible to give a comprehensive treatment of its working. However, licensees who deal with overseas licensors need to be aware of it and how it can aff ect their remittances of advances and royalties to overseas licensors. Withholding tax is a tax levied on remittances of advances and royalties to licensors outside Australia. There is a specific department of the Australian Taxation Office (ATO) that deals with withholding tax. The people there are helpful and will answer telephone queries and supply the necessary forms on request. Th e ATO’s website also contains pretty much anything you need to know. The practical eff ect of withholding tax laws is that all licensees have to deduct a specifi c percentage of all royalty and advance payments and pay it to the ATO accompanied by the appropriate form. The percentage varies, depending upon the country to which the royalties are being paid. It can range from 5% to 10% (for countries with tax treaties with Australia) up to over 40% (for non-treaty countries), which is why you have to contact the ATO before you make the remittance. The licence agreement should always allow the licensee to deduct withholding tax before calculating the remittance, otherwise the licensor could insist that you pay the tax out of your own pocket. For example: if an advance of $10 000 is agreed, and the withholding tax rate is 10%, then you will send $9000 to your licensor and $1000 to the ATO. If, however, there is no clause in the contract allowing withholding tax to be deducted from the advance, then the licensor could insist you pay $10 000 to it, and you will still have to pay the $1000 withholding tax. In that event, your total expenditure has gone up to $11 000 and the extra $1000 will not be recoupable as part of the advance. The same applies to royalty remittances. The licensee must obtain a receipt from the ATO, which can take months. This receipt is then sent to the licensor. As far as the licensor is concerned, withholding tax is usually treated as a pre-payment of tax in its own country. This means the licensor pays $1000 less tax for that year in its own country. Of course, this only helps a licensor that is actually liable to pay tax in its own country. If the licensor is making a loss, then the tax paid in Australia cannot be reclaimed in its own country.

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