The Guardian’s headlines on VAT are beginning to irritate me.
Amazon might “make UK publishers pay 20% VAT“, but only if it sells a service to those publishers and in that case, it would probably be self-assessed by those publishers under the reverse charge mechanism. Regardless, it’s UK tax law that makes the publishers pay VAT.
Taxand have published an article – Payments For Leasing Bandwidth: Business Profit Or Royalties? – following a recent case in Indonesia. The case involved a payment from Indonesia to a UK company (Intelstat) for the use of satellite bandwidth, and quotes similar cases in India and Australia. The court found for the taxpayer, that the lease payments were business profits and not a payment of royalties.
The point at issue was the interpretation of the phrase “the use of, or the right to use, industrial, commercial or scientific equipment” in the UK/Indonesian tax treaty. This phrase appears in the royalties article of a number of older UK tax treaties and seems at odds with the more usually encountered definition of royalties in this context as relating to the direct use of intellectual property, rather than to the use of the product of intellectual property (the equipment).
ATO triumphs over IBM in $55m tax war – ZDnet – IBM were trying to extend the scope of a “private ruling”, which seems to be an advance pricing agreement of some sort on the transfer pricing of royalties. The agreement was reached for 2004 and IBM considered that it should continue to apply after 2004, and also tried to get a refund for tax paid from 1987-2002 on that basis that the agreement should have retrospective effect.
The Australian Tax Office disagreed, and the court has upheld the additional tax bill for 2005 onwards.
Wanted: A Tax Code for the Digital Age – BusinessWeek – discusses how Amazon reduces its tax bill, compared to similar bricks-and-mortar companies in the US, and refers to transfers of IP offshore, probably to a Luxembourg entity and how transfer pricing assisted a reduction of 6 percentage points in Amazon’s effective tax rate.
From the Moscow Times – newspaper article which gives a general overview rather than detail, but it’s clear Russia have just as much trouble as the rest of the world in working out how to tax IP: “tax consequences of transactions involving goods, works and services leaves ambiguities for the taxation of transactions involving intellectual property”.
Allens Arthur Robinson: Publication: Focus: Tax disputes involving s25-90 interest deductions – ATO lose challenge to deductions on funding royalty stream acquisition
See: http://www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page259?oid=57207&sn=Detail&pid=1
Seems similar to UK R&D tax incentive, but possibly easier to spot qualifying R&D.
See: http://www.jpost.com/Business/Commentary/Article.aspx?id=213334
Allows acquiring company to write off net value of IP in acquired company over 5 years – both acquirer and acquired must be companies incorporated and managed/controlled in Israel, so has very limited application globally.