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Re: Tax withheld on royalties payment to foreign residents

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Dear All, 

I was wondering is anyone can help on the following scenario:

 

An Australian business entered into a licence agreement for the use of a brand owned by a foreign resident company.

The agreement provided for royaties as well as advertising contribution to be paid to the brand's owner calculated as percentage on the sale made by the Australian business. 5% on the sale for royalties and 1% for the advertising contribution.

 

Can you please advise if the tax witheld is to be applied on the payment of the royalties only or on both (Royalties + advertising).

 

Thanks

 

 

 

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Community Manager

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Hi @Cardis,

 

Thanks for your patience while we liaised with a technical area.

 

You must withhold tax from royalties you pay as an Australian resident payer to a foreign resident payee with an overseas address. The types of payments which are considered royalties are discussed further at the “Withholding from royalties paid to foreign residents” page. The royalties you pay in respect of the brand of the foreign entity will likely be subject to withholding tax.

 

Whether withholding tax is to be applied to the advertising contribution will depend on what the advertising contribution relates to and whether the payment falls within the definition of royalty. The Commissioner’s view of the definition of royalties is set out in Taxation Ruling IT 2660 (IT 2660). We recommend that you refer to the explanation in IT 2660 in addition to the “Withholding from royalties paid to foreign residents” page to assist you in deciding whether the payment for the advertising contribution satisfies the definition of royalty.

 

Please let me know if there's anything more you need. Smiley Happy

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Community Manager

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Hi @Cardis,

 

We are looking into this for you and will respond soon.

Most helpful response

Community Manager

Replies 0

Hi @Cardis,

 

Thanks for your patience while we liaised with a technical area.

 

You must withhold tax from royalties you pay as an Australian resident payer to a foreign resident payee with an overseas address. The types of payments which are considered royalties are discussed further at the “Withholding from royalties paid to foreign residents” page. The royalties you pay in respect of the brand of the foreign entity will likely be subject to withholding tax.

 

Whether withholding tax is to be applied to the advertising contribution will depend on what the advertising contribution relates to and whether the payment falls within the definition of royalty. The Commissioner’s view of the definition of royalties is set out in Taxation Ruling IT 2660 (IT 2660). We recommend that you refer to the explanation in IT 2660 in addition to the “Withholding from royalties paid to foreign residents” page to assist you in deciding whether the payment for the advertising contribution satisfies the definition of royalty.

 

Please let me know if there's anything more you need. Smiley Happy