Taxes on licenses

 

Hi,
while we are trying to make licensing your music on Tracks & Fields as easy as possible there is an item we cannot influence – taxes on licenses.

This is not at all meant to be legal advice, the only thing we try to do is helping you to understand the process of getting the tax back or getting an exemption from the tax payment.

Note 1: It’s worth it

The good news first: in most cases, due to bilaterial tax treaties, the tax burden with an exemption is reduced to 0%.

Also, once you have the exemption, it applies to future licenses with us until the exemption expires – so you don’t need to do that process every time.

Last, but not least: with an exemption you can also claim back taxes that have been withheld by us before. This has limitations as well (depending on the regulations of each country), but for the previous 1-3 years it is usually possible.

The tax exemption is a bureaucratic procedure, but all in all easy to manage.

Note 2: It is not VAT

While invoices to foreign countries typically have a VAT rate of 0%, the tax that applies here is withholding tax which applies on license fee payments, (and also any other royalties, interest etc.), not VAT.

Note 3: It is your tax duty, not our benefit

Tracks & Fields as the company licensing music from you has to deduct the tax from the license payment (we are simply obliged to do so by law unless you have an exemption). Please note, this is your tax obligation, Tracks & Fields is just obliged to directly deduct it from the license fee payment and pay it to the tax authority on your behalf. It is important to understand, as only you can prove to be eligible taxpayer in your home country (that’s why you have to do the process). We are stressing this fact, as often musicians, labels and publishers get the impression that this is money that Tracks & Fields receives/keeps, which is not the case. Is quite the contrary: we have to make extra efforts to declare and pay the taxes on your behalf (but this is the law).

Note 4: Double taxation treaties don’t apply automatically

Just checking that the double taxation tax treaty between your country and e.g. UK provide a 0% tax rate does not mean that taxes do not need to be withheld. Such treaties apply to taxpayers in country A and B. Thus, the general idea of the tax exemption process is to prove that you are tax payer in one counbtry and therefore the tax treaty applies.

Note 5: Don’t assume that the tax process is the same as in your home country

If you, e.g. are located in the US, the typical way to get US tax exemption is through forms like W-8BEN. But this would be the process for US, if you are receiving royalties/license fees from other countries, their process applies.

Literally every country has withholding tax, but every country has a different process of how to get exempted and/or get the withheld tax back.

We are explaining the process for UK and Germany in this post.

Note 6: The exemption is between you and the tax office, we are not involved

As it is your tax duty, we are – apart from withholding, declaring and paying it on your behalf – not part of the exemption process. We will be just automatically informed once the exemption is granted. That’s the reason why you should never send the exemption documents to us, as we can not do anything with these. Also, we won’t have any information about the status of your exemption, as this is something between you and the tax office. For any requests related to the exemption, you need to directly deal with the tax authority.

Note 7: Start the process as soon as possible

We recommend to already start the exemption process, once you signed a license agreement as it influences the re-claim and payment of the withholding tax itself.

We pay the withholding tax on a quarterly basis to the tax authority, which basically creates 3 possible cases:

a) exemption is granted before we pay your invoice: in that case we can pay the amount as due to the double taxation treaty (in moste cases 0%, so without any deduction)

b) exemption is granted after we paid your invoice, but before the end of the quarter/before we declare the taxes: In such case we can pay the remainder as accoring to the double tax treaty to you

c) exemption is granted after we paid your invoice and after we declared the taxes: in such case the exemption grant is a basis to re-claim the withheld amount from the tax authority, so the tax authority will pay the withheld amount to you.

Let’s get started:

As the process differs from country to country, the first question you need to answer is which country you are receiving the payments from:

 

Tracks & Fields UK Limited (London, UK)

(Contact partner/invoicee is from UK)

Click here
Tracks & Fields GmbH (Berlin, Germany)

(Contact partner/invoicee is from Germany)

Click here
 

 

Licenses with Tracks & Fields UK Limited

The process for making a claim under a double taxation agreement is quite straightforward for licenses made with Tracks & Fields UK Limited.

The responsible tax authority for UK is HMRC.
You can check for detailed information on the HMRC website here or jump to the relief for companies here. Basically there is one form to be filled for double taxation treaty relief, depending on whether you as the receiver of the license fee are an individual or a company. Please note, that this post is jut give a guidance how to do it, we are not updating the links and the screenshots, so make sure you are using the current version of the form.

I am an individual
Form DT individual
I am a company
Form DT company
 

 

The forms look extensive at first sight, but half of the pages is information on how to fill it + it contains sections for exemptions on interest as well (which is not relevant here).

The screenshot below shows the parts with the information of Tracks & Fields UK Limited (name, address, registration number), which apply to both of the forms:

 

Licenses with Tracks & Fields GmbH

The authority resonsible here is the German tax office, called Bundeszentralamt für Steuern , here is a link to their website.

The form for the exemption looks basically like in the screenshots below. Please note, that this post is jut give a guidance how to do it, we are not updating the screenshots to match the most current version of the form, so the current form may look a bit different.

Here are the steps:

    1. Once you signed a license agreement, you can start the tax exemption process. You do this by filling the tax exemption form as provided here. If the link is not working anymore, you have to check on the BZST website or google for the document below. You should fill it out as hinted on the screen shots below – take over what is filled in black PLUS fill the gaps marked in red. You should fill section V and apply for exemption from the date of the license agreement (and not fill section VI) as in case it is needed, an exemption automatically converts into a refund claim (but a refund claim does not convert into an exemption).
    1. Send it to your local tax authority and have it stamped there.
    1. Once you receive it back, just send it the applcation to:
      Bundeszentralamt für Steuern
      Referat St III 3
      53221 Bonn
      Deutschland

       

       

       

       

       

       

       

       

       

       

       

      Important: do not send it to us, as we are not part of the exemption process. We will just get notified by ther German tax office once the exemption is granted.
    1. If everything is alright, you will receive a document from Bundeszentralamt. It is sent in German language (don’t know why), so the important page should look like this:
      final_exemption_grantIn the upper right is an internal reference number called “Geschäftszeichen”. You need to use this for all communication with Bundeszentralamt. “Die Freistellung wird erteilt” means that the exemption is granted. Further below it states the period of the granted exemption (usually a period of 3 years) which means that future licenses between you and us are also exempted from withholding taxes. We will will automatically receive a copy of this document.
  1. If we haven’t paid the taxes to the authority yet (as mentioned above, we have to do it quarterly), we will now wire the remainder to you and all is fine. if we already have paid the taxes then you need to get it refunded from Bundeszentralamt. To do this, we will organize a confirmation document that confirms that the license have been paid and send it to you. It will look like the form shown below.

     

     

     

     

     

     

     

     

     

     

     

    IMPORTANT:There is only this one original, if you lose it there is no chance to get a second one (as the authority wants to avid that people get refunded twice).

    final_taxconfirmation

  2. The document in 5. lists the tax deduction and the social security deduction. To get the refund you need to send this doc to Bundeszentralamt (don’t forget your reference number), and state that you want a refund of the “einbehaltener und abgeführter Steuerabzug nach §50a Abs. 2 EStG” and the “einbehaltener und abgeführter Solidaritätszuschlag”. Provide your bank details (don’t forget that they need international banking information, so ideally IBAN and BIC/SWIFT, at least account number and BIC/SWIFT) and you should get the refund then.

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