Royalty payments. Accounting and taxation of royalties. Royalty Taxation and Risks

Royalty is a fee for using someone else's trademark or brand. In the article, we will understand what royalties are, in what cases this type of license fee is used.

Royalty is a type of monetary reward for the use of copyrights, patents, trademarks and brands, franchises, natural resources and other types of property ( ). In simple words, pianos is a regular fee for the provision of services or a trademark. The term "is used in many industries, most notably in franchising, for example:

• when paying rent;
• when collecting a fee;
• when using someone else's brand or trademark;
• when paying for the use of someone else's property (usually payment in the form of a share of profits).

Also, royalty in land law is used as a term meaning a rent for the right to develop natural resources, which is paid to the owner of the land or subsoil by the entrepreneur.

The franchisor (owner of the trademark) and the franchisee (one who pays for the use of famous brand) enter into a franchise agreement, under which the franchisor undertakes to give the right to use its own trademark, conduct advertising companies and assist in staff training, as well as registration commercial premises. The franchisee, in turn, pays a fee for joining the trading network(disposable lump sum) or a certain amount of investment in business development. This gives the entrepreneur the right to engage in own business without special advertising costs and at the same time having regular suppliers. In the process of work, the franchisee pays royalties - payments from sales, as a rule, monthly or quarterly. The amount of royalties is established by the agreement.

Royalty payments: what they pay for

Percentage of profit or turnover. Such a royalty payment, when a percentage is paid on profits, is not so common. The thing is that the amount of profit largely depends on the level of expenses of the franchisee. When a business is just starting up or the franchisee overstates costs, profit margins are minimal or non-existent. In this case, the franchisor does not receive decent pay in the form of royalties.

This type of royalty is beneficial to the franchisee and absolutely not beneficial to the franchisor, because. it cannot affect the size of the profit (). Therefore, the case when the amount of royalties is equal to a percentage of turnover is more common. It is more difficult to hide the real turnover of production from the brand owner. Today it is the most common type of royalty.

Margin Percentage. In this case, the franchisee pays a percentage of trade margin. This option is more beneficial for the franchisor, as he can regulate wholesale and retail prices, and, accordingly, determine the size of the trade margin.

Royalties in the form of a fixed amount. In this case, the amount of royalties is fixed in the franchise agreement, and the agreement also determines the exact terms of its payment. It does not depend on product prices or turnover. The option can be beneficial both to the franchisor (receives a clearly fixed amount, regardless of the turnover or profit of the franchisee), and the franchisee (in the case of large production turnover). The larger the volume of production, the lower the share of royalties in the unit cost of production.

This encourages franchisees to expand production, to conduct business more efficiently. Payments can be paid monthly, quarterly or once a year - this is established by the contract. The option is beneficial for companies that find it difficult to determine the exact amount of income.

Promotional payments to the franchisor– deductions of money for the promotion and advertising of the brand under which the franchise buyer works. These deductions can be included in the percentage of royalties, or they can be made in the contract as a separate clause as a separate payment.

Free royalty: intellectual property license

There is a special kind of property that applies to objects such as literary and musical works, software for equipment (computers, telephones, other office equipment). For their developments and works, the owners receive free royalties - a one-time fee for using intellectual property legally.

There is no general formula for calculating free royalties. This option of acquiring intellectual property can be very beneficial if the object is used repeatedly. For example, this may concern anti-virus programs or photos or music. However, it should be remembered that royalty free does not mean that the intellectual property object can be used for free, it must first be bought from the copyright holder. Also, free royalties can be used for charitable purposes to expand the circle of people who could get access to intellectual property. .

What are the risks of royalties under license agreements

Tax officials find signs of interdependence in transactions under license agreements and charge additional income tax. If they prove that it is economically unprofitable to pay royalties - for example, payments are unchanged, and the profitability of the business is falling, the transaction will be recognized as unrealistic and additional income tax will be charged.

Taxation of royalty payments

From the point of view of the tax legislation of the Russian Federation, funds in the form of royalties are recognized as income of the licensor organization and are subject to corporate income tax in accordance with the provisions of Article 250 of the Tax Code of the Russian Federation.

In accordance with the procedure provided for by subparagraph 3 of paragraph 4 of Article 271 of the Tax Code of the Russian Federation, such income is recognized on the date of settlements in accordance with the terms of concluded agreements or presentation to the taxpayer of documents serving as the basis for making settlements, or the last day of the reporting (tax) period.

Also, the payment of royalties in the Russian Federation is recognized as an expense for a licensee organization in order to form a base for corporate income tax in accordance with the provisions of paragraph 37 of Article 264 of the Tax Code of the Russian Federation.

Royalty as a way to redistribute income tax

Friendly organizations can optimize the payment of income tax without compiling any reports and acts on the services rendered through payments under a franchise agreement to the owner of exclusive rights (royalties).

At the same time, the right holder receiving income should be an organization on a simplified system or an organization on a general regime, but with unprofitable activities. In the first case, savings will be achieved due to the fact that the tax rates on the simplified tax system are lower than the income tax rate (Article 346.20 of the Tax Code of the Russian Federation). In the second case, the proceeds from the transfer of rights will simply reduce the overall loss.

Official position: The Ministry of Finance of Russia confirms that for the recognition of expenses for the acquisition of license rights, the existence of an act of acceptance and transfer is not required. However, royalties can only reduce taxable income if the acquired rights are used in economic activity in strict accordance with the requirements of the law.

The financial department proceeds from the fact that both the agreement on the alienation of exclusive rights and the license agreement should provide for the procedure for the transfer of rights from the right holder to their acquirer. Thus, paragraph 4 of Article 1234 of the Civil Code of the Russian Federation establishes that the exclusive right to the result of intellectual activity or to a means of individualization passes from the right holder to the acquirer at the time of the conclusion of the contract on the alienation of the exclusive right, unless otherwise provided by agreement of the parties. At the same time, Article 1235 of the Civil Code of the Russian Federation stipulates that a licensee may use the result of intellectual activity or a means of individualization only within the limits of those rights and in the ways provided for by the license agreement.

Find a counterparty to check

Royalty is a periodic payment financial compensation for the use of copyright various areas, patents, trademarks, know-how, that is, any intellectual property.

In order to minimize taxation when using intellectual property, most often this property is given into the possession of a tax-free offshore company (hereinafter referred to as the copyright holder).

This scheme is absolutely legal, does not contradict the law.

But these jurisdictions do not have Double Taxation Treaties with developed countries (including Russia), therefore, when royalties are paid directly to an offshore in the country from which the transfer will be made, there is a withholding tax, in our case, this is a tax on the territory of the Russian Federation, the rate is - 20%, according to art. 309 of the Tax Code of the Russian Federation.

Tax Optimization in Royalty

To optimize taxation when paying royalties this scheme must include a transit intermediary registered in a country with which the Russian Federation has an Agreement on the avoidance of double taxation.

Theoretically, it can be a resident company, Austria, Finland, Sweden,.

But if we take into account the cost of registering and servicing companies, the availability of the most easy conditions for doing business, the tax rate, then the choice definitely stops in Cyprus.

Thus, the offshore right holder transfers to the Cypriot (resident) company - the licensee a license to use intellectual property, as well as the right to issue sublicenses.

Thanks to this chain of taxation, there is no withholding tax in Russia, thanks to the Double Taxation Treaty with Cyprus.

In Cyprus, the difference between received and paid royalties is taxed, the tax rate is 10%.

Accordingly, if this difference is reduced, then taxation can be reduced. Under Cypriot law, there is no withholding tax on outgoing royalties in Cyprus. Offshore also has no taxes on royalties and income.

Pitfalls of legislation

In order to avoid paying taxes at source in Russia, some requirements must be met, since royalties related to “other expenses associated with production and sale” (Article 264 of the Tax Code of the Russian Federation) must be documented and economically justified:

• A Cypriot company must provide a Russian company with a document confirming its location in Cyprus (clause 1, article 312 of the Tax Code of the Russian Federation). This document is the Tax residence certificate (and only this document!), certified by the Ministry of Finance of Cyprus, apostilled and translated into Russian. The period for which the status of residence of the company in Cyprus is confirmed must coincide with the period for paying royalties. The document must be provided prior to the payment of royalties.
• Also, according to Art. 1484 of the Civil Code of the Russian Federation, in order to attribute the payment of royalties to the tax base of expenses, it is necessary to use the object of intellectual property in any legal way - on signs, in advertising, applying a trademark to products, etc.
• According to Art. 1490 of the Civil Code of the Russian Federation, a license agreement between Russian and Cypriot firms must not only be concluded in writing, but also be registered in a special government agency Rospatent. Otherwise, the license agreement will be considered invalid.

VAT

Another important point is VAT when paying royalties to a foreign company.

When Russian company acquires the rights to use intellectual property from a foreign company, then the foreign company must be a VAT payer.

Since Russia is recognized as the place of sale of these services (subclause 4, clause 1, article 148 of the Tax Code of the Russian Federation).

If a foreign company is not registered with the tax authorities of the Russian Federation, then the Russian company is obliged to act as a tax agent for VAT. That is, withhold VAT from foreign partners and pay it to the budget simultaneously with the transfer of royalties.

VAT amounts can then be accepted for deduction (Article 171 of the Tax Code of the Russian Federation). According to sub. 26 p. 2 art. 149 of the Tax Code of the Russian Federation, the right to know-how, databases, industrial designs, computer programs, utility models, topologies of integrated circuits is not subject to VAT.

Royalty is a great way to optimize taxation, where the use of trademarks and patents is economically justified. You should always make sure that the royalty rates do not deviate from the market ones.

All documentation must be meticulously maintained, and proof must always be at hand that the intellectual property is actually being used.

The companies of the licensee and sublicensee must not be affiliated structures.

These simple moments will help to avoid unnecessary questions from the tax authorities, and as a result, additional taxes.

Royalty - this is periodic compensation, usually monetary, for the use of patents, copyrights, natural resources and other types of property, in the production of which these patents, copyrights, etc. were used. May be paid as a percentage of the cost of goods and services sold, percent from profit or income. And it can also be in the form of a fixed payment, in this form it has some similarities with rent.

As opposed to commission or fee Royalty is not a one-time bonus.

Royalty has become widespread in franchising, in which monetary compensation is charged for a trademark (trademark), logo, slogans, corporate music and other signs by which the end can distinguish the organization from competitors.

Royalty- this is periodic payments to the seller for the right to use the subject of the license agreement. In the agreements, the R. rate was set in agreements as percentages from cost net sales of licensed products or is determined per unit of output; payment for the right to develop and extract natural resources.

Royalty- this is periodic deductions seller(licensor) for the right to use the subject matter of the license agreement. Set at fixed rates percent from cost pure sales licensed products, their cost, gross arrived or is determined per unit of output.

Royalty or license feee is royalties paid from time to time for movie rentals, books, music discs, and the right to use a patent, invention, or license for a product or technology. Deductions are made by the licensee in favor of the owner licenses, through agreed time periods. The amount of payments is fixed in the form of an interest rate, the calculation is based on the economic gain from the listed activities (for example, the value of net sales or gross profit). Most often, the fee is fixed from the total cost of sales of products.

Royalties are also called royalties. The copyright holder receives a Royalty each time his intellectual property is used for commercial purposes (for each reproduction of a song or music, publication, and so on).

In some cases, the term royalty is used in relation to payments for the right to mine. natural resources and field development. In countries where it is considered the property of the state or monarchy (for example, in the UK), Royalty is a tax paid by enterprises that specialize in mining. In the United States, where the right to private property is in force, royalty is not included in the number of tax deductions, but is a rent for the use of resources.

Due to the fact that not all payments for the transfer of the right to use objects of intellectual property rights are Royalties in the terms of the TCU, many tax payers may have difficulty reflecting transactions with Royalties in the Corporate Income Tax Return.

In order to avoid errors when filling out the Tax Declaration for income tax enterprises Let's dwell on this issue in more detail.

Royalties in the benefits of the taxpayer.

Royalties are included in income:

from operating activities (line code 02 of the Tax Declaration for income tax enterprises);

other income(line code 03 of the Corporate Income Tax Return).

1) Income from operating activities includes royalties accrued under contracts in accordance with which works are performed and services are provided.

Conditional example. Under a license agreement, the developer of a computer program (the licensor) transferred the distribution treaty(licensee) the right to sub-license. Under a sublicensing agreement, the licensee transfers the rights to use a computer program treaty private user (sublicensee). With every sold licenses for the use of a computer program, the licensee accrues to the licensor a Royalty in the amount of 70 percent of the cost of the license granted to the end user. Royalties accrued by the licensee for the transfer of the right to use a computer program to an end user are included by the licensee in operating income.

2) Royalties are included in other income as passive profit (clause 14.1.268, article 14 of the TCU). In order to be convinced of this, it is enough to look at Appendix “ID” to line 03 of the Tax Declaration for Corporate Income Tax (line code 03.2).

Conditional example. Under a license agreement, the owner of a patent for an invention, the exclusive property rights to the agreement are recognized as his intangible asset, provided industrial enterprise manufacturing process license industrial products. For the use of the invention, the industrial company monthly transfers to the owner patent Royalty. This Royalty is a passive benefit to the owner patent.

Royalty (Royalty) is

Royalty (Royalty) is

Licensing fees - amounts paid to the creator or participant of an artistic work based on individual sales work. To receive royalties, a work must generally be copyrighted or . Also, often the amount of license fees received is negotiated.

For example, the author tends to conclude treaty with a publisher to publish a book. In most cases, the author gets some credit for giving the publisher the right to publish the book. The rest of the money made from the book will be royalties, a percentage of the profits from each book sold. Sometimes this percentage is high and other times relatively low. Sometimes the upfront is low, but the licensing fees are higher.

Further, should the book be made into a film, the film's profit rights can be negotiated as both a flat fee and royalties. That way, the person could sell their idea directly to the director, and get paid sincerely. Alternately, the writer might license his ideas to the director and receive a percentage of the film's profits as royalties.

Even after the film left the cinema, the author could still continue to make money in royalties through DVD sales, or through licensing to show the film on television. Frequently repeats of licensing mean lower license fees over time.

An actor participating in a film might also be entitled to royalties through DVD sales, or through licensing to show the film on television. Also, TV show personalities often make royalties when series are re-launched. Sometimes when shows go into syndication, royalties continue to be made long after the show has ended. Again, royalties tend to decrease as shows are shown more frequently.

In some cases, people may go to court to sue for royalties when a patent or copyright is infringed. Thus, illegally used songs, for example, might mean being prosecuted for a portion of one's profits. Some musicians advertise their work as a one-time payment, which allows them to receive more airplay. This was the case with the surprise 2006 hit band, Well Go.

Instead of concluding treaty for licensing fees, the group decided to publish their first and second videos on the site, YouTube. This gave everyone access to the band's videos, and free downloads. The result was the band's extreme popularity and boosted record sales. Sometimes, the decision to produce something royalty-free can actually lead to more financial rewards.

Sources

Wikipedia - The Free Encyclopedia, WikiPedia

btimes.ru - Russian Business News

mybank.ua - My bank

Encyclopedia of the investor. 2013 .

Synonyms:

See what "Royalty" is in other dictionaries:

royalty- For each premium product released for sale, the OCOG pays a royalty. The procedure for paying royalties is detailed in each agreement with a marketing partner. The Partner is obliged to fully report on this issue to the OCOG. [Department… … Technical Translator's Handbook

ROYALTY- periodic (current) deductions to the seller (licensor) for the right to use the subject of the license agreement. In practice, ROYALTY is established as a fixed rate as a percentage of the value of net sales of licensed products, its ... ... Financial vocabulary

Royalty- Royalty (royalty) - 1. Compensation regularly paid for the use of a patent, copyright, property of another person in the form of a certain percentage of deductions from the volume of income, sales of products, its cost, ... ... Economic and Mathematical Dictionary

Royalty- (eng. royalty) periodic compensation, usually monetary, for the use of patents, copyrights, natural resources and other types of property, in the production of which these patents, copyrights were used ... ... Wikipedia

ROYALTY- [English] royal power; deductions to the author] econ. 1) periodic deductions for an invention or KNOW-HOW purchased under a license, paid to the licensor (LICENSOR) within a certain period specified in the license ... ... Dictionary of foreign words of the Russian language

royalty- license fee, license fee; payment, remuneration, deduction, payment Dictionary of Russian synonyms. royalties noun, number of synonyms: 6 remuneration (26) … Synonym dictionary

ROYALTY- (English royalty) compensation for the use of patents, copyrights, natural resources and other types of property, paid as a percentage of the cost of goods and services sold, in the production of which patents were used, ... ... Law Dictionary

Royalty- See Royalty Glossary of business terms. Akademik.ru. 2001 ... Glossary of business terms

ROYALTY- (English royalty, from medieval French roialte, from Latin regalis royal, royal, state), a type of license fee; periodic interest payments (current charges) to the license seller, ... ... Modern Encyclopedia

ROYALTY- see ROYALTY. Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B. Modern economic dictionary. 2nd ed., rev. M .: INFRA M. 479 s .. 1999 ... Economic dictionary

18Jan

What is Royalty

Royalties are an official payment to the owner of tangible or intellectual property for the use of it, a patent, work or other property.

What is ROYALTY - meaning, definition in simple words.

In simple terms, royalty is a certain amount of money that must be paid to the rightful owner of the rights to any property. In other words, you can say that if you want to use someone's patented idea or technology, franchise, musical or artistic work for the purpose of making money, then you need to pay royalties to its rightful owner. For example, if you need to use any copyrighted material (), then from the point of view of the law, this becomes possible only after agreeing all legal and financial aspects with the copyright holder. Otherwise, the use of such material will be illegal, which may lead to legal action.

Another excellent example for understanding the meaning of the word “Royalty” can be the organization of the work of a world famous restaurant chain. fast food McDonald's. The fact is that formally most restaurants are not owned by McDonald's Corporation, but they all pay royalties for using their franchise. In simple terms, the parent company sells a “license” to use its brand, subject to compliance with corporate requirements and standards.

Rates and types of royalty.

The most common occurrence when compiling royalty amounts is a percentage of gross sales. This usually ranges from five to nine percent. Thus, this is a beneficial aspect for both the owner of the rights and the one who uses them. There are also franchisors who determine the amount of royalties in the form of a specific fixed figure.

In the modern world, more and more space is occupied by business relations based on a franchise. For some, this word is still incomprehensible, but most entrepreneurs are already actively using franchise agreements in their activities.

Royalty is a monetary contribution that no franchise can do without, because, as everyone knows, free cheese is only in a mousetrap. Therefore, after the conclusion of the contract, every month you will need to pay a certain amount.

Everything you need to know about royalties, the features of its design and nuances, we will analyze in the article.

What is royalty?

Many active and temperamental people, in order to improve their own well-being, dream of starting their own business. In this case, there are three ways.

1. Start your own business from scratch. But! In this case, you will need to go through the whole story from the very beginning. In most cases, this takes more than one year. However, all novice businessmen want to profit from their own business almost immediately, from the first day. Therefore, this option is suitable only for very aspiring people.
2. Buy a business that is already fully functioning in the vastness of the country. Thus, you will save yourself from additional expenses and difficulties that arise at the initial stage.
3. . This is the most famous and the right way, because it contains a minimum number of risks and dangers. All you have to do is follow company rules and pay royalties on time. In return, you will get invaluable experience in doing business, which can be successfully used at the end of the contract with the main company.

To understand what royalty is in a franchise, you need to know the essence of this concept itself. So, a franchise is the name of a deal concluded between the main company, which is well known with positive side in the world and a smaller company just starting out.

According to the documents, a novice businessman receives:

1. The right to use software that may be needed to conduct business.
2. Permanent legal consultations concerning any branches of work.
3. Continuous training of staff, improving the quality of work with clients.
4. A complete supplier base, whether it be food, equipment and services. But, you can only use provided companies in your work.