| Sports |
By
MARK OPUR
Taxation on royalties
LAST week’s introduction on taxes
related to intellectual property rights attracted Mr Oala Moi Eno
to inquire if I could also comment on specific issues related to
taxation on royalties.
I feel obliged to respond before proceeding with further
discussion on the subject of taxation on intellectual property
rights.
For tax purposes, “royalty” has a technical meaning but that is
not the subject of consideration here.
Suffice to say that it would include the following types of
payment; a payment to the owner of a patent for the use of it or a
payment to an author, editor or composer for each copy of a book,
a piece of music etc, sold by the publisher or for the
presentation of a play.
This certainly includes payments made to a singer or artist in
respect of gramophone records or CDs made of his songs.
Sometimes it is difficult to characterise a payment as a royalty.
To do so would entail an in-depth consideration of the technical
provisions in our tax laws. Only those payments, which are for the
use of, or the right to use, a property or a right belonging to
another person, are royalties.
I believe it would be a question of fact and degree and that
common sense should be applied in all circumstances.
I do recognise, however, that people are free to structure their
tax affairs in a manner they see fit to lessen the tax burden.
Although that is perfectly alright, they should not be seen to be
avoiding tax and should therefore seek professional advice where
necessary if they seek to embark on a programme to reduce their
tax liability.
Our tax laws provide for a withholding tax mechanism on royalties
and it operates as a final tax.
The mechanism dispenses with the need to calculate the actual net
tax liability having regard to available deductions. The final
royalty withholding tax is imposed on royalties to non-residents
(i.e. people who do not live in PNG or companies who do not carry
on business in PNG).
As it is the final tax, no issue of liability arises on that
particular payment in the country in which the taxpayer is
resident.
A person who makes any royalty payments to a non-resident is
required to deduct so much of if as is payable in tax and furnish
a remittance advice to the Commissioner-General.
The rate of tax is usually 30% but could differ for payments to
residents of countries with which we have double tax agreements (DTA).
The majority of our DTA have 10% as the rate for which tax is to
be charged for royalties paid to non-residents. In respect of
royalty payments made to individual owners of a copyright, our tax
laws provide that such payment is to be included in the assessable
income of a taxpayer.
This would be included together with the taxpayer’s income from
other sources, if any, in determining the tax payable after
deducting all necessary expenditure.
I should point out that tax on royalty payments received by
individuals and resource owner groups in respect of mining,
petroleum, fishing and timber operations are treated differently.
Any person or company which is making any such payment is required
to withhold by way of deduction the amount payable in tax on that
payment and remit it directly to the Internal Revenue Commission.
This may be the focus of further discussion in a subsequent
article.
I am not able to comment on the utility of the proposed regulation
on Collective Management Organisation as I have not seen it. I
therefore, do not know what it seeks to do.
It remains a matter for the Port Moresby Copyright Owners Lobby to
take it up with Government through the Intellectual Property
Office of PNG.
 
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