Assignment of copyright – is royalty withholding tax payable?

Stephanie Barnes of Deacons reports on the recent Taxation Ruling TR 2008/7 by the Australian Tax Office that an Australian Company that pays for an assignment of copyright from a Foreign Company may be liable to royalty withholding tax even though the assignment appears to be an outright sale and not a licence or royalty arrangement.

According to Stephanie Barnes of Deacons, businesses in the software, publishing, media and internet industries may prefer to assign, rather than licence, copyright and intellectual property for commercial reasons. Therefore, Stephanie Barnes writes that it is critical for Australian business to consider whether they have an obligation to withhold royalty withholding tax from any payment it makes to a foreign company for the assignment of, or right to use, copyright and other intellectual property rights. An Australian Company may be required under the terms of an assignment or licence agreement with foreign company to gross up its payment to foreign company to compensate for any royalty withholding tax withheld. The gross up may itself be liable to royalty withholding tax and the gross up will be an additional cost to the Australian Company.

Assignment of copyright – is royalty withholding tax payable?