INTM630320 - Royalty Withholding: Definition of a royalty: Commencement

FA16/S40(4) applies the updated definition of ‘intellectual property’ to payments made on or after 28 June 2016.

Arrangements with a main purpose of avoiding FA16 amendments

FA16/S40(5) ensures that in determining whether the revised definition of ‘intellectual property’ in ITA07/S907 (as introduced by FA16) applies to a payment, arrangements entered into with a main purpose of avoiding the effect of the changes made are disregarded.

FA16/S40(6) determines that the effect of any arrangements are ignored and the date of payment is treated as the date on which the payment would have been due under arrangements previously in place.

Example

A licence in place prior to 28 June 2016 dictates that payment of a royalty relating to use of a trade mark is due on 1 July 2016. This is not an annual payment and so prior to 28 June 2016 there was no duty to deduct income tax on such payments.

The payment falls within the updated definition of intellectual property in ITA07/S907. As such, there is a duty to deduct income tax on any payments made on or after 28 June 2016.

If the licence were amended to ensure the payment is made on 27 June 2016 (instead of 1 July) and one of the main purposes of making such an amendment was to avoid the duty to withhold, then the amended licence is disregarded for the purposes of that payment. The payment is treated as though it were made on 1 July, as it would have been under the previous licence, and as such the payer has a duty deduct income tax from that payment.