International Taxation Laws

Discussion in 'Indie Business' started by Indiepath.T, Jun 10, 2005.

  1. Indiepath.T

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    I have my accountants looking at this, in the meantime I wondered if anyone here has any experience that they might like to share.

    The deal : A Californian based organisation sells your game and pays you a royalty, of this royalty they wish to retain 30% to cover US Tax. When you receive you payment the UK governement want thier cut. This is known as Double Taxation and agreements between the UK and US should prevent this.

    The question : As a UK based corporation am I exempt from the US Tax?
     
  2. svero

    Moderator Original Member Indie Author

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    Normally I believe that an individual can file what's called a W8BEN form which allows a US corporation to pay them without having to withold taxes because they are not US citizens. I'm not sure how it works with regards to a company paying a company, but I'd be surprised if they had to withold taxes in that case. But normally if you're not an american citizen or company you don't pay american taxes and the vendor should not be witholding any amounts.
     
  3. terin

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    Witholding

    Yeah this situation seems a little odd. If I recall my old finance classes it SHOULD work something like this:

    Any business who conducts business in a foreign country is subject to that countries tax. This often results in double taxation. Some countries, and it is very likely the US/UK, have systems to avoid that. However!

    If they are an agent of yours they are NOT your company and you should NOT be paying their taxes. They are taxed based on income, so they should have the funds on hand to pay their own taxes.

    So, just seems like a very strange excuse to tie up your capital and use it themselves.

    -Joe
     
  4. alfie

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    I agree with Joe, it's all a bit odd. If they are paying you a royalty it is an expense of their business and therefore tax deductible from their accounts. You declare the royalty over in the UK in your accounts and pay the tax to Her Majesty.

    Is this Californian company some sort of Publisher? Is it some standard term they have had in their contract for years that small indies dont query?
     
  5. James C. Smith

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    Even if you were a US citizen, I don't understand why the publisher would ever withhold taxes from royalty payments to the developer. Are they claiming this is related to income tax or sales tax? Are they paying you personally or paying your company? I am not a tax expert by any stretch of the imagination but it would help if you said what kind of tax this is. Persona income tax, corporate income tax, sales tax, ect.
     
  6. James C. Smith

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    I don’t why I posted anything before since apparently I had no idea what I was talking about. I just spoke to our accountant who takes care of this kind of stuff for us. He said that when we receive royalties from any US based distributes/publishers who sell our games, they all require us to fill out a W9 (a US tax form). If we did not fill out that form, the US company paying us would be required to withhold 30% of our royalty payment.

    We do the same thing when we sell a game on our web site and pay a royalty to the developer or affiliate. If we pay royalties to anyone we require a W9 form from them first otherwise we send 30% of the money to the US government. This is true if we are paying a US based developer or a developer in another county.
     
    #6 James C. Smith, Jun 10, 2005
    Last edited: Jun 10, 2005
  7. walkal

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    Here are my experiences, although they'll probably just add to the confusion.

    I live in Australia and have a mobile phone game being distributed by a US company. Recently they asked me to fill out a W8-BEN form for the IRS, which I did. I had expected that this would result in no US tax on my royalty payment, but in fact they took out 5% withholding tax. Why 5% and not 30? Maybe it flows from a tax treaty between the US and Australia. From my reading, I gathered that anyone outside the US who has US withholding tax deducted should be sent a certificate that would allow them to claim the amount back when filing a tax return in their own country. I didn't get this, but as the amount involved is embarrassingly tiny, I'm not worrying about it.

    Previously the US firm had asked me to fill out a different form, which I queried, and on that occasion they ended up sending a royalty payment with no tax taken out. (Maybe they just don't know what they're doing.)
     
  8. terin

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    There you have it...

    James has the right approach:

    This kind of technical question requires an accountant. I would suspect many accountants would be happy to answer this short question free of charge... at least, I know mine would (but then, ive been using him as my accountant for 10 years).

    -Joe
     
  9. Indiepath.T

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    THanks for the feedback.

    I've had to go to a number of accountants to get this answered and none of them can still tell me what is what. I am thinking what James is saying is correct, I have that form and I will be using it :p
     
  10. James C. Smith

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    Weather you have to pay tax on the money or not, the US company paying you is required to withhold %30 unless they can prove who you are. They don’t have to prove if you need to pay tax or not, they just need to prove you are real.

    This isn’t entirely about the tax YOU have to pay. It is also related to the tax paid by the publisher who is selling your game. They need to pay tax on their profits. The US government doesn’t want to allow companies to make up fake expenses to offset their revenue. They have to either provide the proper documentation to prove their expenses are real, or pay the %30 penalty.

    If a US based game publishing company takes in $50,000 of revenue (from example by selling 2,500 copies of a $20 game) they don’t necessary pay tax on that $50,000 amount. If they had $40,000 of expenses associated with generating that revenue then they are only taxed on the $10,000 of profit. But if in additional to real expenses, they also claimed that they had to pay $10,000 of royalties to “Casper the ghost†then their books would show no profit and they wouldn’t have to pay any tax at all. By making up a fake expense, they avoided paying tax on $10,000. If they can’t prove they really paid that money, and WHO they paid it to, the US government makes them pay tax that $10,000 just like they would have to pay tax on that money if they had keets it. The US government requires them to document that the company (or person) they paid royalties to is real. The government wants to verify their exact identity. That is what the W9 tax form does. If the publisher can prove who this expense was paid to, then they avoid paying their tax on that money.

    But the other part of the equation is that once the US government know who this royalty was paid to, they are going to make sure that person or company declares that money as revenue and pays their own tax on it if that is appropriate. In your case, you will most likely not pay US tax on it because you are based in another country that has treaties with the US.

    But my main point is, it doesn’t really matter if you as the developer are required to pay tax on this money. The publisher also has to pay tax on this money unless they can prove who they paid it to to make it a legitimate expense to offset their revenue and reduce their tax liability.
     
  11. frozax

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    Filling a W-8BEN

    Hello,

    I'm re-opening this thread because I am looking for information about the W-8BEN. As a non-US resident, I need to fill out a W-8BEN for a US-based company that will sell my games. Everything was ok until I had to fill the 6th field : taxpayer identification number (TIN). I have done some research in that and here is what I understood:
    US residents can use their SSN for this, but foreigners need to have a TIN. It can be obtained be filling another form (W-7). And to fill this form, I need quite a lot of documents from my country (stuffs that will certainly require quite some time). However, on the W-8BEN, it's written that the TIN is: "if required". Is it that if I do not have/fill the TIN, taxes will be withheld from the payments I will receive; if I have a TIN, I suppose I may not be cut by 30% depending on tax treaties between countries.
    Is it really how it works? Has anyone had experience with this? I think trying to get a TIN will take so much time, that it is not really worth it, at least in this particular contract.

    Thank you,
     
  12. Tom Gilleland

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    I also think that the publisher may not have to do a W9 if the amount payed out is less the $600. Ask an accountant about this. So if you have small sales with a publisher, they may handle it differently.

    So which is more complicated, the Tax Code :confused: , or your latestest Programs Code? :rolleyes:

    Tom
     
  13. Norbyte

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    Actually I think you're supposed to leave field 6 blank.

    We just used the fields 1-4, 7 (we put our VAT# there) and 9 (we ticked a+c), when we had to send a W-8BEN, and it worked fine.
     
  14. frozax

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    Ok, thank you both for the answers.
    I still have difficulties with all the paperwork :)
     
  15. electronicStar

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    Does every indie ont this board, who is non-american and work with portals, have to fill that form or deal with these legalities?
    It seems a bit complicated, and an ugly way to loose some of your profit.
     
  16. Indiepath.T

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    Most are requesting it now, suppose they got burnt and ared now covering their asses.
     
  17. Savant

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    Yeah, I suddenly got a W-9 to fill out from Big Fish the other day.
     
  18. Indiepath.T

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    And I bet it was "So that we can release your funds" :)
     

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