Foreign Withholding Tax on Music Royalties – An Ongoing Investigation
Since forming TMA (The Musician’s Advocate), it has come to my attention that many countries are withholding tax on my royalties at source, despite tax treaties being in place. This is an ongoing thought process, but I wanted to start writing about it now and update as I go along.
All royalty collection companies provide statements breaking down any tax withheld. It is not every country, but Spain, Italy, France, Belgium, Poland and Brazil appear frequently. The tax rates vary by territory: Belgium is only 7 percent, and Germany 15, but Spain typically withholds around 24%, and Italy around 30–35%. So if your royalties are substantial, this can quickly become significant. Most countries have an agreement with the UK, through a tax treaty so we should not be taxed at source, nor should we be taxed twice, which if one had not realised this, one would be. For Italian royalties that's a tax rate of 54 percent.....
Footnote: I am currently in discussion with PPL, who seem to indicate foreign royalties are generally not subject to local withholding tax. Based on my statements, this appears correct — but I find this hard to believe, maybe it is an error? Why would a local tax authority enforce a tax treaty for PPL, but not other royalty companies, would be A question. I will update this once confirmed formally.
Working out how to stop foreign withholding, or recover the money, has therefore become my mission.
Preventing withholding in advance generally requires filing tax treaty exemption forms with each collection society. These forms must often be certified by HMRC or accompanied by a Certificate of UK Tax Residence. They typically last between one and two years. The difficulty is that you do not know in advance which countries will pay royalties in a given period, making it impractical to file forms for every territory. In reality, this approach is time-consuming and only partially effective.
Recovering the tax after deduction is more achievable. UK taxpayers can claim Foreign Tax Credit Relief through their Self-Assessment tax return. HMRC will allow credit for foreign tax paid against UK tax due on the same income, up to the UK tax rate (typically 20% for basic-rate taxpayers). If a country withholds more than the UK rate — for example Italy — the excess must be reclaimed directly from the foreign tax authority.
However, this is often difficult. Spain, for example, requires access to online systems that demand national ID registration, I am beginning to think it might be impossible. Two emails to the embassy so far un-responded to. Let's face it, they are not going to make it easy..
For now, I would suggest (not tax advice) that the most practical route is: File forms with the biggest offenders, declare foreign royalty tax on your UK Self-Assessment and claim Foreign Tax Credit Relief. Then if necessary pursue foreign refunds only for larger withheld sums.
If you would like more information or an informal chat, don’t hesitate to get in touch:
The Musician’s Advocate
www.themusiciansadvocate.uk
07540 336779
More soon.
Thanks,
James
