How not to pay license royalties. Sample license agreement for the use of an invention (non-exclusive license). Factors reflecting the economic aspects of the transaction

Often, organizations with foreign participation take the name from their foreign “mother”, because it is much easier to start an activity with a “promoted” brand. However, in this case, a Russian company becomes obligated to pay so-called royalties for the use of a trade name.

Royalty (eng. royalty - royal privileges) - periodic payment for the right to use a license for goods, inventions, patents, innovations, publishing books, renting films.

Based on business customs, royalties are paid monthly under the relevant license agreements on the right to use, for example, a trade name.

Within the framework of civil law relations, royalties will be remuneration under a license agreement #M12293 0 902019731 0 0 0 0 0 0 0 249627279(Clause 5 of Article 1235 of the Civil Code of the Russian Federation)#S. Russian legislation does not establish restrictions on the maximum amount of royalties paid under licensing agreements.

Therefore, the parties, based on free legal will, have the right to establish any reasonable value of such an agreement. These license agreements are subject to state registration, without which they are declared invalid ( #M12293 1 902019731 0 0 0 0 0 0 0 249365133 pp. 2, 3, 6 tbsp. 1232#S #M12293 2 902019731 0 0 0 0 0 0 0 249627279 para. 2 p. 2 art. 1235#S #M12293 3 902019731 0 0 0 0 0 0 0 346424057 clause 1 art. 1490 Civil Code of the Russian Federation #S )*1.

*1 Most often, when transferring rights to trademarks, a subtype of licensing agreement is concluded - a commercial concession agreement ( #M12293 4 9027703 0 0 0 0 0 0 0 395903771 Ch. 54 Civil Code of the Russian Federation#S).

Income tax

For profit tax purposes, monthly payments (royalties) for the use of the licensor's invention (name) in the production of products are recognized as other expenses associated with production ( #M12293 0 901765862 0 0 0 0 0 0 0 346227452 subp. 37 clause 1 art. 264#S #M12293 1 901765862 0 0 0 0 0 0 0 345637623 subp. 8 paragraph 2 art. 256 of the Tax Code of the Russian Federation#S), and are taken into account when forming the tax base for income tax.

Such expenses based on #M12293 2 901765862 0 0 0 0 0 0 0 395445023 clause 1 art. 318 of the Tax Code of the Russian Federation #S are indirect and fully relate to the expenses of the current reporting (tax) period ( #M12293 3 901765862 0 0 0 0 0 0 0 395445023 clause 2 art. 318 Tax Code of the Russian Federation #S).

In accordance with #M12293 4 901765862 0 0 0 0 0 0 0 395117342 subp. 4 paragraphs 1 art. 309 of the Tax Code of the Russian Federation #S, income of a foreign organization (which is not related to its business activities in the Russian Federation, carried out through permanent representative offices) received from sources in Russia and subject to income tax withheld by the organization - the source of payment of income, includes income from use in the Russian Federation rights to intellectual property, in particular payments of any kind received by a foreign organization as compensation for the use (granting the right to use) of any patents.

The calculation and withholding of the amount of income tax on the specified income paid to foreign organizations is carried out by the Russian organization (tax agent) in all cases, except for the payment of income that, in accordance with international treaties (agreements), is not taxed in the Russian Federation, subject to presentation by the foreign organization tax agent confirmation provided for #M12293 5 901765862 0 0 0 0 0 0 0 395182877 clause 1 art. 312 Tax Code of the Russian Federation #S ( #M12293 6 901765862 0 0 0 0 0 0 0 395051804 subp. 4 paragraphs 2 art. 310 Tax Code of the Russian Federation #S).

As an example, consider a situation where a commercial concession agreement is concluded with a Swiss company.

According to #M12293 7 901714421 0 0 0 0 0 0 0 249299594 Art. 7 Tax Code of the Russian Federation #S and #M12293 8 901714421 0 0 0 0 0 0 0 249823888 clause 1 art. 12#S of the agreement between the Russian Federation and the Swiss Confederation of November 15, 1995 “On the avoidance of double taxation with respect to taxes on income and capital”, royalties arising in the Russian Federation and paid to a resident of Switzerland are taxed only in Switzerland if such a resident has the beneficial right to royalty

Provisions #M12293 9 901714421 0 0 0 0 0 0 0 249823888 clause 1 art. 12#S Agreements do not apply if the person beneficially entitled to the royalties, being a resident of Switzerland, carries out business activities in the Russian Federation (in which the royalties arise) through a permanent establishment located there, and the right or property in respect of which the royalties are paid is effectively connected with such a permanent establishment ( #M12293 10 901714421 0 0 0 0 0 0 0 249823888 clause 3 art. 12#S agreement). In the case under consideration, the activity does not lead to the formation of a permanent representative office of a Swiss company in the Russian Federation; therefore, it applies #M12293 11 901714421 0 0 0 0 0 0 0 249823888 clause 1 art. 12#S agreement and the Russian organization does not withhold corporate income tax from the income paid.

However, a non-resident is the recipient of royalties in accordance with #M12293 12 901765862 0 0 0 0 0 0 0 395182877 clause 1 art. 312 of the Tax Code of the Russian Federation #S must provide the tax agent with confirmation that he has a permanent location in a state with which Russia has an agreement (Switzerland) regulating tax issues. The confirmation must be certified by the competent authority of the relevant foreign state (apostille).

Value added tax

Based #M12293 0 901765862 0 0 0 0 0 0 0 248971910 subp. 4 paragraphs 1 art. 148#S and #M12293 1 901765862 0 0 0 0 0 0 0 294257334 pp. 1, 2 tbsp. 161 of the Tax Code of the Russian Federation #S, if a Russian organization pays a foreign company royalties under a license agreement, the subject of which is exclusive rights to an invention (trade name), then the Russian organization as a tax agent has the obligation to withhold and pay VAT on the amounts of remuneration paid to the foreign organization under a license agreement.

Taxation is carried out at a rate of 18% ( #M12293 2 901765862 0 0 0 0 0 0 0 294781628 clause 4 art. 164 Tax Code of the Russian Federation #S).

Based on the clarifications of the Ministry of Taxes of Russia, set out in letter dated September 24, 2003 N OS-6-03/995@ "On the procedure for calculating and paying value added tax", the tax base specified in #M12293 3 901765862 0 0 0 0 0 0 0 294257334 clause 1 art. 161 of the Tax Code of the Russian Federation #S, when selling goods (work, services) for foreign currency, determined by the tax agent, is calculated by recalculating the expenses of the tax agent in foreign currency into rubles at the exchange rate of the Central Bank of the Russian Federation on the date of sale of goods (work, services), i.e. . on the date of transfer of funds by the tax agent in payment for goods (work, services) to a foreign person who is not registered with the tax authorities as a taxpayer. The tax agent recalculates the tax base when selling goods (work, services) for foreign currency into rubles at the exchange rate of the Central Bank of the Russian Federation on the date of actual expenses (including if these expenses are advance or other payments) regardless of the adopted accounting policy for tax purposes.

The amount of VAT withheld from a foreign company is paid to the budget simultaneously with the transfer of funds to the foreign company under a license agreement ( #M12293 4 901765862 0 0 0 0 0 0 0 295699137

The amount of VAT paid by an organization to the budget as a tax agent is subject to deduction in accordance with #M12293 5 901765862 0 0 0 0 0 0 0 295436991 para. 1 clause 3 art. 171 Tax Code of the Russian Federation #S. The tax deduction is provided upon fulfillment of the conditions established #M12293 6 901765862 0 0 0 0 0 0 0 295436991 para. 3 p. 3 art. 171 Tax Code of the Russian Federation #S.

According to clause 16 of the Rules for maintaining logs of received and issued invoices, purchase books and sales books when calculating value added tax, approved. #M12291 901776354 by Decree of the Government of the Russian Federation dated December 2, 2000 N 914#S, all issued and issued invoices are recorded in the sales book in all cases when the obligation to calculate VAT arises, incl. perform the duties of tax agents. A similar opinion is shared by the Russian Ministry of Finance in letter dated 05/11/2007 N 03-07-08/106: “...It is advisable to prepare invoices in two copies. In this case, the first copy should be kept in the journal of issued invoices and registered in the Book sales, and the second copy - in the journal of received invoices and registered in the Purchase Book as the right to a tax deduction arises."

In tax accounting, positive (negative) exchange rate differences arising from changes in exchange rates are non-operating income (expense) ( #M12293 7 901765862 0 0 0 0 0 0 0 345703165 clause 11 art. 250 of the Tax Code of the Russian Federation #S), and with the accrual method, the date of receipt of the specified income is recognized as the last day of the current month ( #M12293 8 901765862 0 0 0 0 0 0 0 346882816 subp. 7 paragraph 4 art. 271 Tax Code of the Russian Federation #S).

Accounting

When concluding a license agreement, intangible assets (trade name) received for use are taken into account by the user on an off-balance sheet account in an assessment determined based on the amount of remuneration established in the agreement (clause 39 of PBU 14/2007 “Accounting for intangible assets”, approved #M12291 902081954 by order of the Ministry of Finance of Russia dated December 27, 2007 N 153н#S).

Since the Instructions for the application of the Chart of Accounts for accounting of financial and economic activities of organizations, approved. #M12291 901774800 by order of the Ministry of Finance of Russia dated October 31, 2000 N 94н#S, a separate off-balance sheet account is not provided for accounting for intangible assets received for use; an organization can open an account, for example, 012 “Intangible assets received for use.” At the same time, payments for the granted right to use the results of intellectual activity or means of individualization, made periodically, calculated and paid in the manner and terms established by the agreement, are included by the user (i.e., a Russian organization) in the expenses of the reporting period for ordinary activities (clause 5 PBU 10/99 "Expenses of the organization", approved #M12291 901735798 by order of the Ministry of Finance of Russia dated 05/06/1999 N 33н#S).

According to the Instructions for using the Chart of Accounts, these expenses are reflected on a monthly basis (as of the last date of the current month, subject to the conditions of clause 16 of PBU 10/99) in the organization’s accounting in the debit of account 20 “Main production” and the credit of the account for accounting settlements with the licensor, for example account 76 " Settlements with various debtors and creditors."

Example

Romashka LLC entered into a license agreement with the Swiss company Romashka to provide a trade name. Royalties payable monthly (by the 20th of the current month) under the agreement amount to $900,000.

Let's say the US dollar exchange rate on August 20, 2011 was 30 rubles, on August 31, 2011 - 31.5 rubles.

At the time of concluding the license agreement, the following entries must be made in accounting:

D-t 012 - the receipt of an intangible asset for use is reflected (in the assessment established by the contract);

D-t 76/60 K-t 68 - 4,118,644 rub. (900,000 * 18/118 * 30) - VAT is withheld from the amount paid to a foreign company under a license agreement;

D-t 76/60 K-t 52 - 26,588,155.92 rub. (900,000 - 900,000 * 18/118) * 30) - reflects the payment of royalties for August;

D-t 68 K-t 51 - 4,118,644 rub. - paid to the budget VAT withheld from the income of a foreign company;

D-t 20 K-t 76/60 - 24,025,423.72 rub. (900,000 - 900,000 * 18/118) * 31.5) - expenses associated with the use of exclusive rights are reflected;

D-t 19 K-t 76/60 - 4,118,644 rub. - reflected VAT paid on the income of a foreign company for August;

D-t 76/60 K-t 91-1 - RUB 1,144,067.796. (900,000 - 900,000 * 18/118) * (31.5 - 30) - reflects a positive exchange rate difference;

D-t 68 K-t 19 - 4,118,644 rub. - VAT paid to the budget is accepted for deduction;

At the expiration date of the contract:

Kt 012 - the cost of an intangible asset received for use is written off.

As noted above, the amount of VAT withheld from a foreign company is paid to the budget simultaneously with the transfer of funds to the foreign company under a license agreement ( #M12293 0 901765862 0 0 0 0 0 0 0 295699137 para. 2 clause 4 art. 174 Tax Code of the Russian Federation #S).

In accounting, the transfer of funds to a foreign company is reflected in the credit of account 52 “Currency accounts” and the debit of account 76. In this case, the withheld amount of VAT is reflected in the debit of account 76 and the credit of account 68 “Calculations for taxes and fees”. Payment of VAT to the budget is reflected in the debit of account 68 and the credit of account 51 “Current accounts”. The tax deduction for VAT in the amount paid is reflected in the debit of account 68 and the credit of account 19 “Value added tax on acquired assets.”

Maximum royalty limit

According to #M12293 0 901765862 0 0 0 0 0 0 0 345834237 Art. 252 of the Tax Code of the Russian Federation #S expenses are recognized as justified and documented expenses incurred by the taxpayer. Justified expenses mean economically justified expenses, the assessment of which is expressed in monetary form. Documented expenses mean expenses supported by documents drawn up in accordance with the legislation of the Russian Federation. Any expenses are recognized as expenses, provided that they are incurred to carry out activities aimed at generating income.

Based on this, the taxpayer must confirm the actual use of the trademark (company name) in activities aimed at making a profit. And the structure of expenses incurred by type of activity, including license fees, must correspond to the structure of the company’s income.

In other words, if the company’s income is $1,000,000, and license payments (royalties), for example, are $999,999, then, most likely, the tax authorities will recognize them as economically unjustified (unjustified) and aimed at understating the tax base on income tax.

It should be noted that according to #M12293 1 901714421 0 0 0 0 0 0 0 295633603 Art. 40 of the Tax Code of the Russian Federation #S for tax purposes, the price of goods (work, services) indicated by the parties to the transaction is accepted. Until proven otherwise, this price is assumed to correspond to market prices*1.

*1 On July 18, 2011, the President of the Russian Federation adopted and signed Law No. 227-FZ “On amendments to certain legislative acts of the Russian Federation in connection with improving the principles of determining prices for tax purposes” (see the article “Transfer Pricing Law: a brief overview " on p. 18).

However, based on #M12293 2 901714421 0 0 0 0 0 0 0 295633603 clause 2 art. 40 of the Tax Code of the Russian Federation #S, tax authorities, when monitoring the completeness of tax calculations, have the right to check the correctness of the application of prices:

For transactions between related parties;

For commodity exchange (barter) transactions;

When making foreign trade transactions;

If there is a deviation of more than 20% upward or downward from the level of prices applied by the taxpayer for identical (homogeneous) goods (works, services) within a short time.

In turn, in the situation we are considering, a licensing agreement with a foreign entity is a foreign trade transaction (or it is possible that the parties to the licensing agreement are interdependent persons), as a result of which the tax authorities have the right to check the price of the transaction and in the event of its deviation from the level of market prices by more than Additional 20% taxes and penalties.

Since trademarks (company name) are a purely individual thing, the tax authorities are unlikely to be able to determine the market price of specific licensing rights and defend their arguments in court. Although isolated cases of negative outcomes for taxpayers did occur (see, for example, resolution of the Federal Antimonopoly Service of the North-Western District dated October 6, 2005 N A66-5524/2004).

Thus, despite the fact that Russian legislation does not define the maximum amount of royalties under licensing agreements, if they are excessively high (deviation from market prices by more than 20%) for tax purposes, the tax authorities, based on #M12293 3 901714421 0 0 0 0 0 0 0 295633603 Art. 40 of the Tax Code of the Russian Federation #S, they can charge additional amounts of VAT and income tax.

Quite simple: royalties are that part of the proceeds from the sale of a product that the author receives. Despite the simplicity of the formulation, the topic is quite extensive and, in connection with this, taxation and accounting of such transactions has a number of features. Let's try to deal with some of them.

Scope of application and some legal issues

The concept of royalty can be attributed to several legal areas. Thus, it is used as one of the forms of payment under a contract widely in the franchising sphere and denotes copyright and license payments for the commercial use of something belonging to another person (patent, work of art, etc.).

And finally, royalties in economics and land law (a term used in world practice) are rent payments for the right to develop natural resources paid by an entrepreneur to the owner of land or subsoil.

The legal relations of the parties regarding royalties related to franchising activities are regulated by Chapter 54 of the Civil Code of the Russian Federation (the basis of the relationship: a commercial concession agreement). In accordance with paragraph 4 of Article 1027 of the Civil Code of the Russian Federation, all rules of the Civil Code of the Russian Federation on a license agreement are applied to a commercial agreement. The only difference between a commercial concession agreement and a license agreement from a legal point of view is the object of the agreement. In a commercial concession agreement, an object is a set of exclusive rights, while in a license agreement it is the right to use an intellectual property object.

Based on clause 2 of Art. 1028 of the Civil Code of the Russian Federation, a commercial concession agreement is subject to the federal authority for intellectual property (Rospatent). According to the general rule of Art. 1031 of the Civil Code of the Russian Federation (which can be amended by agreement), a commercial concession agreement must be registered by the copyright holder (franchisor). If the registration requirement is not met, the contract is considered void (according to Article 1031, paragraph 2 of Article 1028, paragraphs 3,6 of Article 1232, paragraph 1 of Article 1490 of the Civil Code of the Russian Federation).

Relations between individuals (authors) and persons receiving exclusive rights to works are regulated by Chapter 70 of the Civil Code of the Russian Federation. It determines that the relationship must be confirmed in writing in the form of a certain type of agreement. These are types of contracts such as:

• agreement on the alienation of the exclusive right to a work and the right to use the work under a license (Article 1285 of the Civil Code of the Russian Federation);
• license agreement granting the right to use the work (Article 1286 of the Civil Code of the Russian Federation);
• copyright agreement (Article 1288 of the Civil Code of the Russian Federation).

As for royalties in the economy, from the point of view of world practice, the mineral extraction tax introduced in the Russian Federation in 2002 actually currently performs the functions of a royalty (payment to the owner of resources for the right to develop reserves).

It is necessary to dwell separately on agreements with counterparties, because a question arises about the applicable law (Russian or foreign). According to paragraph Art. 1211 of the Civil Code of the Russian Federation, by default, the law of the country with which the contract is most closely related is applied to the contract. The relations of the parties under the license agreement are governed by the law of the state where the licensor is located. At the same time Art. 1210 of the Civil Code of the Russian Federation allows the parties to an agreement to choose the law that is subject to application to their rights and obligations under this agreement. When applying Russian law, relations automatically fall under the regulation of Part 4 of the Civil Code of the Russian Federation.

Tax aspects

Income tax

Expenses in the form of royalties are recognized in the period to which it relates, on the date in accordance with the conditions or on the date of presentation to the user of documents serving as the basis for making calculations, or on the last day of the reporting (tax) period (clause 3, clause 7, art. 272 of the Tax Code of the Russian Federation).

For profit tax purposes, income from the granting of rights to the results of intellectual activity for use, in accordance with clause 5 of Art. 250 of the Tax Code of the Russian Federation, relate to non-operating income, if they are not determined by the taxpayer in accordance with the procedure, Art. 249 of the Tax Code of the Russian Federation, as income from the sale of property rights. Thus, if for the copyright holder this type of activity is one of the main types of activity, then income is recognized in accordance with Art. 249 of the Tax Code of the Russian Federation, and if not, then in accordance with Art. 250 Tax Code of the Russian Federation.

In clause 3, clause 4 of Art. 271 of the Tax Code of the Russian Federation determines that for non-operating income in the form of royalties, the date of receipt of income is recognized as the date of settlements in accordance with the terms of concluded agreements, the date of presentation to the taxpayer of documents serving as the basis for making settlements, or the last day of the reporting (tax) period.

Important:

International aspect

One of the most common tax planning schemes is the transfer of intellectual property rights to an offshore company for the purpose of accumulating royalties in a tax-free jurisdiction.

UNCTAD estimates the global offshore industry to be worth US$12 trillion (http://www.unctad.org). Russian organizations cannot do without the use of offshore business. The use of offshore jurisdictions by Russian organizations affects not only their internal interests, but also the interests of Russia as a whole. Evasion reduces the public sector of the country's economy, and companies that evade paying taxes through such schemes may find themselves in a worse position than law-abiding taxpayers.

Accounting

In organizations whose subject of activity is the provision for a fee of rights arising from patents for inventions, industrial designs and other types of intellectual property, revenue is considered to be receipts the receipt of which is associated with this activity. Thus, remuneration should be included in income from ordinary activities in the reporting period in which they were accrued under the terms of the agreement (clauses 12 and 15 of PBU 9/99).

The organization's expenses for paying royalties related to its core activities are recognized as expenses for ordinary activities in accordance with clause 5 of PBU 10/99, approved by Order No. 33n dated 05/06/1999.

Example

In October 2011, Alpha LLC transferred to the Company the right to use a set of exclusive rights to intellectual property (this service is the main activity). Monthly payments are set in a fixed amount in euros and are subject to receipt on the terms of 100% prepayment in rubles at the official rate on the day of payment. The monthly payment under the contract is set at 118 euros (including VAT) and is due no later than the 15th day of the month preceding the billing month. The euro exchange rate set by the Bank of Russia as of October 15, 2011 is 41.6638 rubles/euro.

Dt 51 “Settlement accounts” Kt 76-5 “Settlements with other debtors and creditors”

RUB 4,916 (118 euros* 41, 6638) - Advance payment received from
user for November

D-t 76-VAT K-t 68-2 “Calculations for VAT” 750 rub. (RUB 4,916 x 18/118) - VAT is calculated on the prepayment received

D-t 76-5 K-t 90.1 “Sales” 4,916 rub. (118 euros* 41, 6638) - Income for
november

Dt 90-3 “Value added tax” Kt 68.2 750 rub. (RUB 4,916 x 18/118) - VAT calculated on income

D-t 68-2 K-t 76-VAT 750 rub. - Accepted for deduction of VAT calculated from the prepayment amount for November

Franchising is one of the most popular and profitable forms of organizing a modern business. Its basic instruments, franchise and royalty, are a source of regular income for the owner. With the right approach, the desire to earn millions from one brand name becomes a reality.

The term royalty: what does it mean?

What is royalty? This term comes from the English word “royalty” (royal privileges) and means periodic payments for the right to use a brand name, logo, and, in a broader sense, the subject of a licensing agreement (computer programs, inventions, phonograms, trade secrets, etc.). ). It can also mean a royalty, a rent payment for the right to develop natural resources or to use the land and its subsoil by an entrepreneur.

An exception

The concept does not apply to such intellectual property objects as:

• information bases;
• programs of broadcasting organizations;
• marks for goods and services that are considered well known or have international registration;
• invention (not the method of its creation, but the result);
• layout of integrated circuits;
• animal breeds;
• plant varieties.

Payout rate calculation

The calculation of the payment rate may change by year of the license agreement or every month depending on production volumes and sales - a sliding rate. The higher the level of sales or production, the lower the royalty. This encourages franchisees to successfully create and sell products. Often, a license agreement is not signed without a specific clause regarding the payment of a minimum amount of remuneration, which must be paid by the licensee in any case.

The royalty percentage depends on the number of sales over a certain period of time or is determined per unit of output. Typically, it ranges from 1-12%, with the most commonly used range being 2-6%. But some industries use an empirical scale of average royalties (also called the market license price). It should be taken into account that the average royalty price is very different for different countries of the world. For example, for the US pharmaceutical industry it is 3-10%, France - 4-5%, Russia - 10-15%.

License agreement: royalties. Franchise as a tool for creating a new business

To understand the place of royalties in economic relations, it is important to understand the meaning of certain concepts. The development of modern business sphere largely depends on franchising trends. This is the name for entrepreneurial activity, which consists of transferring to a new business partner the rights to use the brand name and selling brand products - a franchise. Both parties enter into a franchising agreement, which sets out the purpose of the activity, rights and obligations, and the amount of investment.

Each franchisor (trademark owner) offers its own format of cooperation. But in any case, he must provide the partner with the right to use his brand, contribute to the growth of his business, and he, in turn, is obliged to make investments. As a rule, this is a lump sum fee and a royalty. Although in some cases, the franchisee separately pays for the cost of retail equipment, rental premises, and advertising costs without the support of the franchisor as an initial investment.

Royalty is essentially the ultimate goal of the franchise. If it involves the creation of cooperation, then regular payments for the right to use a successful brand to develop your business are its ultimate goal, which provides profit to the franchisor.

When signing the agreement, the franchisee must carefully study all its clauses and pay special attention to the amount and frequency of royalty payments. The document must clearly indicate the subject of the agreement, the duration of the cooperation, and the territory where the business activity will be carried out.

The place of franchising in the world of business

Many people will ask: “Why has franchising become so popular?” The answer is simple: “Because it benefits both parties.” The owner of a well-known chain of stores, a brand, a trademark has a thriving business. What else can he earn from, besides expanding the network of his retail outlets and enterprises (which requires significant investment and loss of time)? He can sell the right to use his brand name to a person who wants to create his own successful business. That is, provide him with a franchise. And the entrepreneur, in turn, will be able to sell, for example, items from a well-known brand without spending on advertising, he will have contacts with suppliers, support in work and procurement.

The answer to the question "what is royalty?" will help a new franchisee to correctly analyze the risk-benefit ratio.

Rights and obligations of partners

The franchisor undertakes to give the right to use his trademark, sell products, promises to train staff, provide advertising materials, and assist in the design of the premises. In return, the franchisee contributes a certain amount of money as an investment in opening a business or a one-time lump-sum contribution (fee for joining a retail chain). What is royalty? These are periodic payments from sales that are made during the work process. Their size is necessarily fixed in the contract.

Royalty classification

Sometimes they use an average royalty rate, focusing on the global indicator of the fixed value of payments for a given area of ​​\u200b\u200bbusiness. The franchise agreement may even approve a zero royalty level or a period during which nothing will need to be paid (in the case where the return on investment is long-term).

Different types of royalties allow you to effectively regulate financial relations between the franchisor and the partner, guaranteeing the owner a stable income.

Taxes and periodic franchise payments

Many entrepreneurs are concerned about the issue of taxation of royalties. Taxes can be assessed in different amounts and regulated by conceptually different codes. Everything depends on the legislative policy of the country. In most cases, the provisions of laws designed to regulate the taxation of such payments are based on distrust of the taxpayer.

But not a single edit in their articles can completely neutralize the optimization schemes for royalty payments. The state is always interested in replenishing tax revenues in the context of franchising operations and, in particular, royalty payments. And one of the most popular ways to minimize expenses for an entrepreneur is to optimize income tax through periodic franchise payments. Income from the use of intellectual property objects is taxed at 20% (Article 309 of the Tax Code of the Russian Federation). The amount must be transferred by the tax agent to the federal budget no later than the day following the day the income is paid.

A franchise agreement gives the franchisee the right to use the copyright to an object of intellectual property in their own interests. What is royalty? These are regular periodic payments for this service. Knowing the importance and effectiveness of franchising tools will significantly increase the chances of creating a successful business.

periodic payments to the seller (licensor) for the right to use the subject of the license agreement, for example, a franchise, patent, copyright, trademark, logo, slogan, intellectual property, know-how, technology

A detailed definition of the concept of royalty, types of royalty, royalty amount, royalty method, frequency of royalty payment, royalty accounting, royalty tax, royalty agreement, royalty amount, royalty calculation, royalty exemption

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Royalty is the definition

Royalty - This 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. Can be paid as a percentage of the cost of goods and services sold, a percentage of profit or income. It can also be in the form of a fixed payment, in this form it has some similarities with rent.

Royalty is The franchise owner's income depends on the licensee's gross income, or perhaps represents a fixed amount stipulated in the agreement. Ideally, this is a measure and indicator of the income from the acquired franchise. In many ways, it is the royalty that determines how profitable the franchise is.

Royalty is payment for the services the franchisor provides to the business of the franchise partner. The franchisor's services may include: logistics, product research, marketing management, development and implementation of advertising campaigns, building and maintaining a system of relations with suppliers, staff training, and maintaining a corporate website. When calculating royalties, in addition to the cost of the franchisor's services, the costs of monitoring the activities of franchise enterprises are taken into account. In the service sector, royalties are an analogue of a wholesale markup on goods (wholesale markup on a service).

Royalty is type of licensing fee, periodic compensation, usually monetary, for the use of patents, copyrights, franchises, 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 sales goods and services, percentage of profits or income. It can also be in the form of a fixed payment, in this form it has some similarities with rent.

Royalty is payments that have become widespread in franchising. In it, monetary compensation is charged for a trademark, logo, slogans, corporate music and other signs by which the end buyer can distinguish the company from its competitors.

Royalty- This periodic payments to the seller for the right to use the subject of the license agreement. In agreements, the R rate is established as a percentage of the cost of net sales of licensed products or is determined per unit of output; payment for the right to develop and extract natural resources.

Royalty- This periodic payments to the seller (licensor) for the right to use the subject of the license agreement. They are established as fixed rates as a percentage of the cost of net sales of licensed products, their cost, gross profit, or determined per unit of output.

Royalty is periodic royalties paid for the rental of films, the release of books, music discs, as well as the right to use a patent, invention or license for a product or technology. The licensee makes payments in favor of the license holder at agreed time intervals. The amount of payments is fixed in the form of a percentage rate, the basis of calculation is the economic benefit from the listed activities (for example, the cost of net sales or gross profit). Most often, the fee is a fixed percentage of the total sales price of the product.

Royalty is payments, also called royalties. The copyright holder receives royalties every time his intellectual property is used for commercial purposes (for each playback of a song or music, publication, etc.).

Royalty is remuneration to the seller (licensor) for granting the buyer (licensee) the rights to use a license, know-how, invention, trademark, other objects, subjects of the license agreement. Royalties are established based either on the actual economic effect of using the license, or on the expected profit of the licensee, not related in time to the actual use of the license. In the first case, percentage deductions are provided from the cost of the license purchase made and sold (royalties) or participation in the licensee’s profits. In the second case - payments of fixed amounts (fixed royalties) in accordance with the terms and provisions of the license agreement.

Royalty is, rewards paid to the creator or contributor to a creative work based on sales of its results to the individual/s. To be eligible to receive royalties, the work must be copyrighted or patented. Also, the royalty amount is usually fixed in the contract.

Royalty is a term used in some cases to refer to payments for the right to extract natural resources and develop deposits. In countries where natural resources are considered the property of the state or monarchy (such as the UK), royalties are a tax paid by businesses that specialize in extracting minerals. In the United States, where there is private property rights to subsoil resources, royalties are not included in tax deductions, but represent a rent payment for the use of resources.

There are different types of royalties, determined by the types of activities in which these payments are applied.

These types include royalties on natural resources, royalties in franchising, royalties in copyright.

Natural resource royalties

Natural rent is a payment for the right to develop and exploit natural resources.

Economic rent refers to the price (or rent) that is paid for the use of natural resources, the quantity of which (reserves) is limited. The problem of distributing seized rent between levels and structures of government can be solved in different ways. For example, in Canada and the USA, a significant part of income is accumulated in the regions - provinces and states, and the federal center has advantages in levying income taxes. In other states, central government structures concentrate royalties at home.

The withdrawal of rent by the state can also occur through the mechanisms of export duties on natural resources and various types of excise taxes. This policy is now typical for Russia.

In world practice, the state usually tries to seize and use rent for the needs of society through various mechanisms. For this purpose, a special tax is often used - royalties. It is often defined as a share of output or a percentage of raw materials produced. Royalties can reach up to 4-10% of the cost of extracted metal and up to 10-20% of the cost of oil and gas. When determining the size of royalties, one must strive for the optimal value in order to establish a reasonable combination of its role as, on the one hand, a means of increasing state taxes, and, on the other hand, its size should not become an obstacle to increasing production volumes.

In the USA, the process of subsoil development and hydrocarbon production is controlled by the government. Recoverable reserves are systematically recalculated, data on production parameters are sent to state regulatory authorities, where the locations for drilling wells are approved and restrictions are imposed on the rate of extraction of minerals. These measures directly or indirectly lead to the formation of conditions that ensure rational use of subsoil, as well as increased returns. To extract rent, instruments such as bonuses, rents, and royalties are used. At the same time, royalties are fixed.

The withdrawal of the main part of natural resource rent and its use is carried out not at the federal level, but at the state level. An example of a state that has effective legislation to regulate extractive industries is Alaska. There, most of the rent received in the field of oil production is directed into the economy for the development of production and social infrastructure, as well as for the creation of the Permanent Fund. It includes 25% of all state revenues from royalties and rents, as well as royalties, bonuses, and federal payments for mineral resources in the portion that is due to the state.

Rental industries in Canada

In Canada, the mechanism for providing subsoil for use is based on a licensing-lease system. The provinces are responsible for approximately 80% of all mineral resources, and the rest is in free use, that is, the property of private owners and the federal government. The provinces have a high degree of independence in the legislative sphere. This system of subsoil use is characterized by the predominance of state ownership of mineral resources, the absence of direct state participation in commercial projects related to the extraction of mineral resources, and the absence of additional requirements for subsoil users in terms of solving problems of socio-economic development of the territory.

Royalties on natural resources in Norway

In Norway, the government strives to ensure that as much as possible of oil revenues goes to the public. For this purpose, government regulation measures are used. Extraction of natural resources occurs on the basis of licenses. The country's tax system is characterized by consistency. It is based on a special sectoral income tax of 50% and a general income tax of 28%. The use of a special tax prevents oil companies from using income from oil production to cover losses from other activities, thereby reducing the tax base. In addition, royalties, determined on a sliding scale, occupy an important place in the Norwegian tax system.

UK resource royalties

In Great Britain and Northern Ireland licensing is also used. Since 2002, these countries have applied a tax on income from oil and gas production of 10%, in addition to a 30% tax on corporate profits. A special tax is also used - royalty, which is paid on profits from hydrocarbon production. When calculating royalties, it is not allowed to reduce it due to losses from other types of activities, but it is possible to receive a discount in terms of the costs of developing another field until its payback. At the initial stage of field development, a special tax is not imposed on the part of the profit corresponding to 15% of profitability. To ensure the country's energy security and replenish strategic reserves, the state can collect royalties not only in cash, but in kind.

Royalty rental industries in Egypt

In Egypt, there are production sharing agreements that are concluded between the state oil company and foreign oil contracting companies. The latter undertake to provide financing at the exploration stage. The state compensates the contractor for the amount of investment upon discovery of profitable oil reserves and leases the field for a period of 20–30 years. Next, an operating company is created, which is owned in equal shares by two parties. The duration of the agreement cannot exceed 35 years. Despite the 50% participation of the state oil company, the operating company is considered private. Royalties are paid as follows. The state oil company supplies a certain share of the produced oil, equal to 10%, from its share in kind or cash to the Egyptian government. The contractor, in turn, pays corporate income tax in the amount of 40.55%. All taxes paid by a government company to a contractor are considered to be the contractor's profit.

Royalty on resources in Nigeria

Subsoil use relations in Nigeria are based on various forms of interaction. Licensing agreements provide for the payment of oil revenue taxes and royalties, which are supplemented by production sharing agreements in accordance with shareholdings. Service agreements include a guaranteed minimum profit of $2.30 per barrel and bonuses for opening reserves. Another type of relationship is practiced when deposits are located in hard-to-reach areas of the country. The contractor bears the costs of exploration and production. If oil reserves are not discovered, the state does not compensate for exploration costs. If a deposit is discovered, production is divided as follows. The first part of the production is used to pay taxes, royalties and concession payments to the government. The second part of the production is oil intended to reimburse the contractor for capital investments and operating expenses within certain limits. Remaining product, i.e. the difference between the total oil production and the oil intended to pay taxes and reimburse costs is divided between the contractor and the national company.

Royalties in franchising

Royalty is one of the most important concepts of franchising, a monthly payment, the rate of which is set by the franchisor. The royalty rate is specified in the franchise agreement, and the frequency of payments is also approved during the negotiation of the terms of the contract.

The royalty amount usually ranges from 1 to 5% of the franchisee's gross income and depends on factors such as:

Prestige of the brand. The highest royalty rates are noted in the hotel business, since world-famous hotel chains extremely value their reputation and strive to protect themselves from cooperation with random entrepreneurs in this industry;

Potential profit size. When calculating the regular payment rate, the franchisor evaluates what benefits the new franchisee will receive from opening a store, how high the profitability is, the trade margin, and so on;

Franchise expenses, for example, if the company provided advertising materials free of charge, assisted in the design of the sales area and staff training, then the money spent can be returned not only thanks to a lump sum fee, but also to the royalty rate;

Costs for maintaining the franchisor’s own staff: accounting, marketing department, centralized supply service.

In franchising, as a rule, three royalty calculation schemes are used:

Percentage of turnover is the most common form of royalty calculation. Characterizes the franchisor's right to a share of the market developed by the franchising partner. The “percentage of turnover” option is used if the franchisor knows the sales volume at the franchise enterprise;

Margin percentage – the franchise partner pays a certain percentage of the difference between the retail price and the wholesale purchase price. This option may be most interesting for a franchise partner whose store has different markup levels for different groups of goods. The “margin percentage” option can be used if the franchisor clearly controls the price and cost of wholesale purchases and retail sales at the franchise enterprise;

Fixed royalties are a single regular payment amount tied to the cost of the franchisor’s services, time of year, store area, number of enterprises, number of customers served, inflation, life of the enterprise, etc. Fixed royalties are typical for the service industry, where it is sometimes impossible to accurately determine the amount of income of a franchise partner. For example, tourism, fast food, restaurant business;

Combinations of the above options are possible. For example, “percentage of turnover, but not less...”. Less common is the option “percentage of turnover, but no less.. and no more...”.

The most common frequency of royalty payments is as follows:

Preliminary is the most optimal frequency for the franchisor to collect royalties from franchise partners. Most often it is implemented in agency schemes, when money, at the time of receipt from the final buyer, is first transferred to the franchisor’s account, and only then part of it goes to the account of the franchise partner;

Weekly or 2 times a month – royalty payments are made once a week / 2 times a month;

Monthly – payment for royalties occurs once a month, usually the receipt of money for the month is carried out no later than the 5th day of the next month. The most risky form of revenue collection, because money may “get stuck” with the franchise partner.

Royalties in copyright are a periodic payment to the copyright owner for each public use of his product. This may include commercial use of music, films and any other types of intellectual property. In the West, the question of paying royalties is a normal practice, but in our country a number of television channels and enterprises in the entertainment, consumer services, and transport sectors evade such payment. For most, it remains strange and incomprehensible why one has to pay for using someone’s copyrighted products for one’s own purposes.

The amount of royalties in practice is a fixed rate, which is paid to the owner of the rights after a previously agreed period of time, while the agreed contract has legal force. Unlike a commission or royalty fee, a royalty is not a one-time bonus. The amount of royalties is calculated from the net sales price of the licensed product, gross profit, cost, or is fixed based on the unit price of the product sold. The most common method is to charge a percentage of the selling price of the product.

Full or partial reproduction of a work in material form (reproduction);

Presenting a work to the public in intangible form by placing it as an exhibition, image, as part of a radio and television broadcast, etc.

Royalty calculation methods

Royalties are used for settlements with the licensor in 80 - 90% of cases when licensing agreements are concluded. In the literature, the royalty amount is defined as “reasonable” or “fair”. Obviously, this should be the case for both parties to the transaction. Royalties must not only justify the costs of the licensee and bring him profit, but also bring income to the licensor necessary for further research, partially compensating for the costs of scientific research on the creation of the licensed object and the preparation of licensing documentation, and in the pharmaceutical industry - for conducting research necessary for the creation and registration of new drugs.

Royalties are usually represented by a rate P (in foreign literature the letter R is usually used), expressed as a percentage of the base - the effect (result) of the licensee (buyer). The following can be used as a base:

Gross income (effective gross income, sales amount, sales volume);

Net income;

Additional profit (arising from the enterprise that purchased and uses IP);

Price of a unit (batch) of products;

Cost price;

Unit capacity of the workshop (production);

Cost of main processed raw materials, etc.

The table shows standard (approximate) royalty rates used by specialized large foreign trade organizations in relation to such a base based on an analysis of global practice in concluding licensing transactions in various industries.

Royalty rates for industrial properties

The absence of a patent, as a rule, reduces the royalty rate by 10 - 30% compared to a similar object transferred under a patent license. Based on the fact that the cost of design documentation usually amounts to up to 30% of the cost of the entire package of technical documentation, when transferring only design documentation under a license agreement, it is advisable to reduce the royalty amount to 30% of the standard (tabular) rates. The standard royalty rates P indicated in the table usually apply to such types of industrial property as inventions.

Royalty rate for know-how

If the license is for the transfer of know-how, the P value is usually reduced by 20 - 60% (compared to the table), depending on a number of factors. For example, it decreases by:

20-40% if the intellectual property is transferred under a simple (non-exclusive) license;

20-40%, if the development of intellectual property requires significant capital investments (for example, for additional research);

40-60% if the know-how is transferred to IP that is known on the market, but is still of interest to the licensee;

70-80% if not the entire package of technical documentation is transferred, but only the design documentation.

There is a tendency to increase the importance of OIP in the creation of new technologies, products, services, and therefore in practice there are increasingly cases where the P rate is taken equal to 20% and even 50% of the additional profit (or NPV - adjusted net income), the source of which is an assessed knowledge-intensive OIS.

When evaluating IP for licensing purposes, the guidelines for adjusting the royalty rates shown in the table can be used.

Royalty rates for copyrighted objects

Remuneration to the author (copyright holder) in the form of royalties, in relation to objects of copyright (in particular, literary works) has a number of features. Below are the main modern forms of royalties used for copyrighted objects.

According to it, the author receives a certain percentage of the entire turnover, the proceeds of the copyright recipient (licensee), without any changes, depending on how many copies the copyright recipient (licensee) sells. This system is very simple and understandable; it is quite often used in practice.

Degressive royalty

According to it, the author receives a certain percentage, which decreases with an increase in sales of copies of the work or with an increase in the income of the recipient. For example, when selling for the first 100 thousand copies. - 10% remuneration, for the next 100 thousand - 9%, etc. When interest rates are calculated correctly, this system satisfies the interests of both the author and the recipient. It is used quite often in Western countries.

Progressive royalty

As sales volume increases, the rate of remuneration paid to the author increases. This system may hinder the promotion of sales of the work by copyright recipients. However, if demand for a work grows, such a system may be acceptable to both authors and copyright recipients (licensees).

Profit-based royalties

The basis for calculating the author's remuneration is profit from the sale of copies of the work, and not gross income. This system is often found in copyright agreements concluded by Russian authors. For them, such a condition is extremely unfavorable, since doubts often arise about the correctness of the calculations made by the recipient (licensee). And there may be intractable disputes over the amount of remuneration.

System, minimum royalty time

This form is often used if the author (copyright holder) intends to speed up the sale of copies of the work. In this case, the copyright recipient (licensee) provides the author with a lower amount of payments for a certain limited period. This form is used when intensifying the sale of a product that brings high profits, or when targeting a product to identify buyer groups and distribution channels. The disadvantage of this form is that beneficiaries seek to extend the validity of discounts by any means.

Minimum Royalty System

Recently, the practice of stipulating in the copyright agreement the obligation of the copyright recipient to guarantee a minimum royalty amount has become widespread, which encourages the copyright recipient (licensee) to intensify the sale of copies of the work.

Minimum price system

A system that fixes the minimum selling price of a copy of a work, from which royalties will be calculated, has a similar goal to the system of a guaranteed minimum royalty. The fact is that the recipient (licensee) may be able to sell legal copies of the work at reduced prices to subsidiaries of the licensee. This makes it possible to hide significant amounts of income from sales from the author (copyright holder). In this regard, it is considered appropriate to include in the copyright agreement a condition determining the size of the sale price of copies of the work, from which the royalty is calculated.

Legal aspects of royalties

The concept of royalty can be attributed to several legal areas. Thus, it is used as one of the forms of payment under an agreement in the now widespread franchising sphere and denotes copyright and license payments for the commercial use of intellectual property belonging to another person (patent, trademark, work of art, etc.).

And finally, royalties in economics and land law (a term used in world practice) are rent payments for the right to develop natural resources paid by an entrepreneur to the owner of land or subsoil.

The legal relations of the parties regarding royalties related to franchising activities are regulated by Chapter 54 of the Civil Code of the Russian Federation (the basis of the relationship: a commercial concession agreement). In accordance with paragraph 4 of Article 1027 of the Civil Code of the Russian Federation, all rules of the Civil Code of the Russian Federation on a license agreement are applied to the commercial concession agreement. The only difference between a commercial concession agreement and a license agreement from a legal point of view is the object of the agreement. In a commercial concession agreement, an object is a set of exclusive rights, while in a license agreement it is the right to use an intellectual property object. Based on clause 2 of Art. 1028 of the Civil Code of the Russian Federation, a commercial concession agreement is subject to state registration with the federal executive body for intellectual property (Rospatent). According to the general rule of Art. 1031 of the Civil Code of the Russian Federation (which can be amended by agreement), a commercial concession agreement must be registered by the copyright holder (franchisor). If the registration requirement is not met, the contract is considered void (according to Article 1031, paragraph 2 of Article 1028, paragraphs 3,6 of Article 1232, paragraph 1 of Article 1490 of the Civil Code of the Russian Federation).

Relations between individuals (authors) and persons receiving exclusive rights to works are regulated by Chapter 70 of the Civil Code of the Russian Federation. It determines that the relationship must be confirmed in writing in the form of a certain type of agreement. These are types of contracts such as:

Agreement on the alienation of the exclusive right to a work and the right to use the work under a license (Article 1285 of the Civil Code of the Russian Federation);

License agreement granting the right to use the work (Article 1286 of the Civil Code of the Russian Federation);

As for royalties in the economy, from the point of view of world practice, the mineral extraction tax introduced in the Russian Federation in 2002 actually currently performs the functions of a royalty (payment to the owner of resources for the right to develop reserves).

It is necessary to dwell separately on agreements with foreign counterparties, because a question arises about the applicable law (Russian or foreign). According to paragraph Art. 1211 of the Civil Code of the Russian Federation, by default, the law of the country with which the contract is most closely related is applied to the contract. The relations of the parties under the license agreement are governed by the law of the state where the licensor is located. At the same time Art. 1210 of the Civil Code of the Russian Federation allows the parties to an agreement to choose the law that is subject to application to their rights and obligations under this agreement. When applying Russian law, relations automatically fall under the regulation of Part 4 of the Civil Code of the Russian Federation.

Taxation of royalties

Abroad, the tax on the amount of royalties is set, as a rule, in the range of 10 - 40%. At the same time, the tax on successively paid royalties is often higher than on consecutive royalties. In some countries, especially in tax havens, royalty payments are not subject to taxes at all. In addition, thanks to the tax credit system in Western countries, when transferring profits from a foreign branch in the form of royalties, an international company receives tax credits in the home country for the amount of taxes paid abroad.

In modern conditions in Russia, the method of transferring profits is through the mechanism of paying royalties, commissions for management services, etc. has special meaning. Until January 1, 2002, our tax legislation did not clearly regulate the procedure for the acquisition of licenses and know-how by organizations (in the Instruction of the Ministry of Taxes of Russia “On the procedure for calculating and paying the income tax of enterprises and organizations to the budget” No. 62 of June 15, 2000, income and expenses in the form of royalties and commission payments are not allocated). This reduced the effectiveness of state control over the export of funds abroad and reduced potential budget revenues. In addition, the taxation of royalties based on agreements concluded by our country to eliminate double taxation is generally more preferential in nature compared to the tax regulation of repatriated dividends, which serves as an additional incentive for the use of license fees to export income from Russia.

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 Tax Code, many taxpayers may have difficulty reflecting transactions with royalties in the Tax Return for corporate income tax.

In order to eliminate errors when filling out the Tax Return for corporate income tax, we will dwell on this issue in more detail.

Royalty amounts are included in income:

From operating activities (line code 02 of the Tax return for corporate income tax);

Other income (line code 03 of the Tax return for corporate income tax).

Income from operating activities includes royalties accrued under contracts in accordance with which work is performed and services are provided.

Conditional example. Under a license agreement, the developer of a computer program (licensor) transferred the rights to sublicense to the distributor (licensee). Under a sublicense agreement, the licensee transfers the rights to use a computer program to the end user (sublicensee). For each license to use a computer program sold, the licensee accrues a royalty to the licensor in the amount of 70 percent of the cost of the license provided to the end user. Royalties accrued by the licensee for transferring the right to use a computer program to the end user are included by the licensee in operating income.

Other income includes royalties as passive income (clause 14.1.268 of Article 14 of the Tax Code). In order to verify this, just look at Appendix “ID” to line 03 of the Tax Return for Enterprise Income Tax (line code 03.2).

Conditional example. Under a licensing agreement, the owner of a patent for an invention, the exclusive property rights to which are recognized as his intangible asset, granted an industrial enterprise a license for a method for manufacturing industrial products. For the use of the invention, the industrial enterprise transfers a monthly royalty to the owner of the patent. This royalty is passive income for the patent owner.

Minimizing royalty tax

It has already become a classic way of structuring royalty payments through the use of a three-link contractual chain consisting of an offshore company - the copyright holder, a transit company - the licensee (for example, in Cyprus or in another state that has a Double Taxation Avoidance Agreement with Russia) and a Russian company as a sublicensee.

Royalties are paid by the Russian company (sublicensee) to the Cypriot licensee, then by the Cypriot company - the offshore owner of the trademark right. The Cyprus company is used as an intermediate link, since payments from Russia in its favor are exempt from withholding tax due to the specified bilateral agreement. As a result, the intellectual property is used in Russia, and royalties are ultimately accumulated in an offshore zone.

In accordance with Article 309 of the Tax Code of the Russian Federation, income from the use of intellectual rights in Russia is subject to a 20 percent income tax. This tax is subject to withholding at the source of payment of income, that is, at the Russian company. At the same time, since we are talking about royalty payments to a company located in a country with which Russia has a tax agreement (in our example, this is the Republic of Cyprus), royalty payments will not be subject to income tax in Russia (based on paragraph 1 of Article 12 Agreement of 1998 and subparagraph 4 of paragraph 2 of Article 310 of the Tax Code of the Russian Federation) and, accordingly, the Russian company as a tax agent will be exempt from the obligation to withhold tax at source. In Cyprus, the profit of a local company under a sublicense agreement is subject to tax at a rate of 10%, but the tax base is reduced by payments under the license agreement that are made to the holder of the exclusive rights to the intangible asset.

With regard to the legal, organizational and tax component of the Russian part of the scheme for structuring royalty payments, three points must be taken into account:

Sublicense agreement in accordance with clause 5 of Art. 13 of the Patent Law of the Russian Federation of September 23, 1992 N 3517-1 and (in the case of trademarks) in accordance with Art. 27 of the Law of the Russian Federation of September 23, 1992 N 3520-1 “On trademarks, service marks and appellations of origin of goods” is subject to registration with Rospatent and without registration is considered invalid. From January 1, 2008, these laws lose force due to the entry into force of the fourth part of the Civil Code, but there are no fundamental changes in relation to the rules for registering trademarks, inventions, utility models, etc.;

From January 1, 2006, the Russian company - the source of payment - is recognized as a tax agent on the amounts of royalties paid and must pay VAT. In accordance with paragraph 4 of Art. 148 of the Tax Code, the Russian Federation is recognized as the place of sale of works (services) if the buyer of works (services) carries out activities here. This provision also applies to the “transfer, grant of patents, licenses, trademarks, copyrights or other similar rights.” Until 2006, this paragraph of Art. 148 of the Tax Code sounded like this: “transfer of ownership or assignment of patents, licenses...”, i.e. VAT was levied only on the transfer of exclusive rights (ownership rights) to these intangible assets. VAT paid on royalties is deductible. And if a Russian company has a “reserve” for taxes to be paid, then in the case of using rights to intangible assets in activities subject to VAT, there will be no additional tax burden for it;

A non-resident is a recipient of royalties in accordance with clause 1 of Art. 312 of the Tax Code must provide the tax agent with confirmation that he has a permanent location in a state with which Russia has an agreement regulating tax issues. The confirmation must be certified by the competent authority of the relevant foreign state.

Despite the outward invulnerability of the scheme, the tax authorities, of course, could not calmly watch how companies, under the guise of all sorts of unnecessary (in the opinion of tax collectors) “rubbish,” “structured” multibillion-dollar payments to low-tax jurisdictions. Therefore, over the past few years there have been repeated attempts on their part to prevent this in one way or another. Currently, there are several factors identified by the tax authorities, the presence of which may deem a royalty payment scheme illegal:

A trademark (patent, secret formula, etc.) is not used in activities aimed at making a profit. The consequences are recognition of the costs of paying royalties under license agreements as economically unjustified. Following this logic, the taxpayer must confirm the actual use of the trademark (patent, rights to another intangible asset) in activities aimed at making a profit. And the structure of expenses incurred by type of activity, including license fees, must correspond to the structure of the company’s income. In other words, if a company produces children's sleds, then royalties for the use of the Marlboro trademark will be recognized by the court as economically unjustified;

The taxpayer created an illegal scheme to evade payment of income tax and VAT on the amounts of license fees paid under fictitious (void) agreements. The main “evasionist” resource of licensing fee schemes: register the rights to something unnecessary (or which in reality has a value much less than on paper), and then pay specific licensing fees for the use of this unnecessary thing. The cornerstone in proving the illegality of the scheme is the identification of the interdependence of the licensor and the licensee, proof by the tax authorities of intent to evade taxes, the absence of a business purpose in the actions of the taxpayer;

Errors in documenting royalty payments. A traditional mistake is the lack of confirmation of the permanent location of the licensor in a state with which Russia has an agreement on the avoidance of double taxation. In accordance with paragraph 1 of Art. 312 of the Tax Code, income tax is not withheld only if the foreign organization, before the date of payment of income, provided the tax agent with a confirmation certified by the competent authority of the relevant foreign states (for example, for Cyprus this is the local Ministry of Finance). Sometimes taxpayers mistakenly believe that a certificate of incorporation is sufficient to prove domicile.

How to avoid risks when paying royalties

In general, royalties are a good tax planning tool for manufacturing enterprises, media, IT and companies in other industries where the use of patents and trademarks has a clear economic justification. It is somewhat more difficult with the trade and services sectors. But in any case, tax risks arise only when this tool is used “head-on” or the amount of license fees exceeds all reasonable limits.

Actions that, in our opinion, need to be taken to ensure that license payments do not turn out to be a dangerous tax scheme:

Payments under the license agreement must be economically justified. Their connection with the company’s income must be traced; 5-7% of turnover - the amount of license fees for the use of trademarks, which usually corresponds to the market level. To confirm the production focus, the main document is, of course, the license agreement. It must clearly indicate for what period and for the production of what volume of products it is concluded. Good evidence of the reality of the relationship with the licensor will be the presence of pre-contractual correspondence with him, minutes of meetings and negotiations. The reality and connection of the licensing agreement with the sale can be confirmed by ordinary accounting and technological documents: invoices and delivery notes indicating the brand name of the product, production and technological maps, etc.

The licensee and licensor must not be interdependent. Tax authorities should not be able to determine that monies paid under a license agreement are reinvested in a Russian company. Compliance with this condition will not eliminate the risk of additional taxes under Art. 40 of the Tax Code in the event of concluding an agreement with a foreign company as part of a foreign trade transaction. But it will be more difficult for tax authorities to prove direct intent to evade taxes or obtain an unjustified tax benefit if non-exclusive rights to intellectual property or visualization tools were received from an unaffiliated person;

Compliance with the requirement to document licensing relationships. The license agreement must be registered with Rospatent in advance, before payments under it begin; the licensor must provide proof of his location with an apostille before the first payment of income to him; changes to the contract must also be registered. In accordance with paragraph 4 of Art. 310 of the Tax Code, the tax agent, at the same time as submitting a tax return for income tax, must provide information on the amounts of income paid to foreign organizations and taxes withheld for the past reporting (tax) period.

Practical royalty payment schemes

In international practice, it is very common to use foreign, primarily offshore, companies to own intellectual property (copyrights, patents, trademarks, etc.). The fact is that intellectual property is the most mobile type of property, easily transferable to a foreign owner. Therefore, the natural tendency is to move such property to those jurisdictions where its operation (that is, receiving royalties - license fees for granting the right to commercially use it) is associated with the least tax losses.

Since most offshore zones do not have tax treaties with developed countries, when royalties are paid to an offshore company in the country from which the income is paid, withholding tax is levied. In certain cases, tax payment can be avoided or its rate reduced if a company from a taxable country with which there is a tax treaty is used as a transit element in the scheme.

Payment of royalties to a company in Cyprus

According to the new Cyprus tax legislation, Cypriot companies can be resident (if they are managed from Cyprus) or non-resident (otherwise).

A non-resident company does not pay taxes on income received outside Cyprus, but is not subject to Cyprus tax treaties. Thus, when royalties are paid from the Russian Federation, they will be subject to withholding tax at a rate of 20%; in Cyprus, there is no tax. There is no withholding tax when distributing profits to a Cyprus company.

A resident company falls under the tax treaty of Cyprus with the Russian Federation, therefore no withholding tax is charged when paying royalties from the Russian Federation in this case. Royalties received by a resident Cypriot company are included in the taxable base, the tax rate is 10%.

It is possible to use a Cypriot resident company as a transit element. In this case, the owner of the patent (mark) is a foreign company. It is possible to use a company from any tax-free offshore jurisdiction (for example, the BVI) for these purposes. This company, under a licensing agreement, transfers to the Cyprus company the rights to issue sublicenses for the use of this patent (mark) in the Russian Federation. The Cypriot company receives royalties from the Russian Federation and pays royalties to the BVI.

There is no withholding tax in the Russian Federation due to a tax treaty. Cyprus taxes the difference between royalties received and paid at a rate of 10%. The margin between royalties paid and received may be 1-3%, so the effective tax rate will be tenths of a percent. There is no withholding tax in Cyprus on outgoing royalties. There is no tax on income or on outgoing dividends in the BVI.

Payment of royalty to a company in the Netherlands

An alternative to Cyprus is the Netherlands. Due to the high income tax rate (34.5%), it is advisable to use a Dutch company only as a transit element. The owner of the patent (mark) is a foreign company. It is possible to use a company from any tax-free offshore jurisdiction (for example, the BVI) for these purposes. This company, under a licensing agreement, transfers to a Dutch company the rights to issue sublicenses for the use of this patent (mark) in the Russian Federation. The Dutch company receives royalties from the Russian Federation and pays royalties to the BVI.

There is no withholding tax in the Russian Federation due to a tax treaty. The Netherlands taxes the difference between royalties received and paid at a rate of 34.5% (this difference should generally be at least 7%, giving an effective rate of approximately 2.4%). There is no withholding tax on outgoing royalties in the Netherlands. There is no tax on income or on outgoing dividends in the BVI.

Switzerland has currently signed 91 double tax treaties. Agreements with Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Russia, Ukraine and Uzbekistan provide an opportunity to optimize the taxation of passive income of holding structures.

According to the agreement between Russia and Switzerland, royalties received by a resident Swiss company are included in the taxable base, the tax rate is only 5%. Therefore, many intellectual property owners register their companies in Switzerland.

Royalty accrual in Ireland

There are several schemes for optimizing license fees (royalties) in Ireland. The most famous is the “double Irish”. This scheme is very popular among American IT companies. In particular, it is used by Facebook, and representatives of Apple were among the first to use it.

First, Company A transfers the intellectual property rights to its Irish affiliate B1. In this case, the headquarters of company B1 should be located in a classic offshore with a zero tax rate. This could be the Seychelles, Bermuda, Cayman Islands, Nevis, Belize, etc.

As a result, company B1 has the opportunity not to pay royalty tax in Ireland, since, in accordance with Irish laws, the company is considered a resident of the state from which it is controlled. B1 then transfers the intellectual property rights to its Irish subsidiary B2. After which B2 conducts business activities, making a profit.

Subsequently, most of the profit for the use of intellectual rights is transferred to B1, which, as mentioned above, does not pay royalty tax at all, because operates offshore. The small portion of profits retained by B2 is subject to Irish corporation tax at a rate of 12.5 percent. In practice, there are cases when a company playing the role of B2 is completely unprofitable.

Sources and links

ru.wikipedia.org - Wikipedia – the free encyclopedia, WikiPedia

bank24.ru – website of the bank Bank24.ru

btimes.ru – Russian business news

mybank.ua – financial information portal

retailidea.ru - retail franchising website

5tm.ru - website of a patent attorney

grandars.ru - economist's encyclopedia

allfi.biz - information portal about investments and investment instruments

fransh.ru - website of the company FRANSH - consulting in the field of franchising

vocable.ru - national economic encyclopedia

franshisa.ru - website about franchising

psychomedia.org - informational and educational resource

klerk.ru - information portal about accounting, tax law

taxpravo.ru - Russian tax portal

taxgroup.ru - website of the consulting company Tax Group

geoglobus.ru - geological-geographical and techno-ecological review

m-economy.ru - problems of modern economics, scientific and analytical journal

roche-duffay.ru - website of Roche & Duffay - international tax planning

rbis.su - Russian Library of Intellectual Property

ocenchik.ru - website of the independent appraisal company Atlant Ocenka

gestion-law.com - website of the company "Gestion" - legal and accounting services

Royalty is now a very fashionable and beautiful word. What is hidden behind it? The answer to the question is quite simple: royalties are that part of the proceeds from the sale of a product that the author receives. Despite the simplicity of the formulation, the topic is quite extensive and, in connection with this, taxation and accounting of such transactions has a number of features. Let's try to deal with some of them.

Scope of application and some legal issues

The concept of royalty can be attributed to several legal areas. Thus, it is used as one of the forms of payment under an agreement in the now widespread franchising sphere and denotes copyright and license payments for the commercial use of intellectual property belonging to another person (patent, trademark, work of art, etc.).

And finally, royalties in economics and land law (a term used in world practice) are rent payments for the right to develop natural resources paid by an entrepreneur to the owner of land or subsoil.

The legal relations of the parties regarding royalties related to franchising activities are regulated by Chapter 54 of the Civil Code of the Russian Federation (the basis of the relationship: a commercial concession agreement). In accordance with paragraph 4 of Article 1027 of the Civil Code of the Russian Federation, all rules of the Civil Code of the Russian Federation on a license agreement are applied to the commercial concession agreement. The only difference between a commercial concession agreement and a license agreement from a legal point of view is the object of the agreement. In a commercial concession agreement, an object is a set of exclusive rights, while in a license agreement it is the right to use an intellectual property object.

Based on clause 2 of Art. 1028 of the Civil Code of the Russian Federation, a commercial concession agreement is subject to state registration with the federal executive body for intellectual property (Rospatent). According to the general rule of Art. 1031 of the Civil Code of the Russian Federation (which can be amended by agreement), a commercial concession agreement must be registered by the copyright holder (franchisor). If the registration requirement is not met, the contract is considered void (according to Article 1031, paragraph 2 of Article 1028, paragraphs 3,6 of Article 1232, paragraph 1 of Article 1490 of the Civil Code of the Russian Federation).

Relations between individuals (authors) and persons receiving exclusive rights to works are regulated by Chapter 70 of the Civil Code of the Russian Federation. It determines that the relationship must be confirmed in writing in the form of a certain type of agreement. These are types of contracts such as:

• agreement on the alienation of the exclusive right to a work and the right to use the work under a license (Article 1285 of the Civil Code of the Russian Federation);
• license agreement granting the right to use the work (Article 1286 of the Civil Code of the Russian Federation);
• author's order agreement (Article 1288 of the Civil Code of the Russian Federation).

As for royalties in the economy, from the point of view of world practice, the mineral extraction tax introduced in the Russian Federation in 2002 actually currently performs the functions of a royalty (payment to the owner of resources for the right to develop reserves).

It is necessary to dwell separately on agreements with foreign counterparties, because a question arises about the applicable law (Russian or foreign). According to paragraph Art. 1211 of the Civil Code of the Russian Federation, by default, the law of the country with which the contract is most closely related is applied to the contract. The relations of the parties under the license agreement are governed by the law of the state where the licensor is located. At the same time Art. 1210 of the Civil Code of the Russian Federation allows the parties to an agreement to choose the law that is subject to application to their rights and obligations under this agreement. When applying Russian law, relations automatically fall under the regulation of Part 4 of the Civil Code of the Russian Federation.

Tax aspects

Income tax

Expenses in the form of royalties are recognized in the period to which it relates, on the date of settlement in accordance with the terms of the concluded agreement or on the date of presentation to the user of documents serving as the basis for making calculations, or on the last day of the reporting (tax) period (clause 3 p. 7 Article 272 of the Tax Code of the Russian Federation).

For profit tax purposes, income from the granting of rights to the results of intellectual activity for use, in accordance with clause 5 of Art. 250 of the Tax Code of the Russian Federation, relate to non-operating income if they are not determined by the taxpayer in the manner established by Art. 249 of the Tax Code of the Russian Federation, as income from the sale of property rights. Thus, if for the copyright holder this type of activity is one of the main types of activity, then income is recognized in accordance with Art. 249 of the Tax Code of the Russian Federation, and if not, then in accordance with Art. 250 Tax Code of the Russian Federation.

In clause 3, clause 4 of Art. 271 of the Tax Code of the Russian Federation determines that for non-operating income in the form of royalties, the date of receipt of income is recognized as the date of settlements in accordance with the terms of concluded agreements, the date of presentation to the taxpayer of documents serving as the basis for making settlements, or the last day of the reporting (tax) period.

Important:

International aspect

One of the most common tax planning schemes is the transfer of intellectual property rights to an offshore company for the purpose of accumulating royalties in a tax-free jurisdiction.

UNCTAD estimates the global offshore industry to be worth US$12 trillion (http://www.unctad.org). Russian organizations cannot do without the use of offshore business. The use of offshore jurisdictions by Russian organizations affects not only their internal interests, but also the interests of Russia as a whole. Tax evasion reduces funding for the public sector of a country's economy, and companies that evade taxes through such schemes may find themselves in a more favorable position than law-abiding taxpayers.

However, investing capital in countries that have low tax rates or exemption from taxation at the “source of payment” of such income as royalties, on the other hand, also has its positive aspects for organizing a business by increasing the competitiveness of companies at the national and global levels through the use of more flexible development strategies.

Taxation of foreign organizations that do not operate through permanent establishments and receive income from sources in the Russian Federation has some peculiarities.

Payers of corporate income tax are foreign organizations that receive income from sources in the Russian Federation (paragraph 3, clause 1, article 246 of the Tax Code of the Russian Federation).

The object of income taxation for such foreign organizations is the income defined in clause 4 of clause 1 of Art. 309 of the Tax Code of the Russian Federation. This includes payments of any kind received as consideration for the use (grant of the right to use) of any patent, trademark, drawing or model, plan, secret formula or process, or the use (grant of the right to use) information relating to industrial, commercial or scientific experience .

In this case, the responsibility for calculating, withholding and transferring to the budget profit tax on the income of a foreign organization rests with the tax agent - the Russian organization (Clause 1 of Article 310 of the Tax Code of the Russian Federation).

On a note:

If a foreign organization does not have permanent representative offices on the territory of the Russian Federation, then its income in accordance with clause 1, clause 2 of Art. 284 of the Tax Code of the Russian Federation are taxed at a rate of 20%. However, if a foreign company is a resident of one of the states with which the Russian Federation has an international agreement on the avoidance of double taxation, a reduced tax rate or tax exemption in the Russian Federation may be applied (clause 4, clause 2, Article 310 of the Tax Code of the Russian Federation) . Such situations are discussed in detail in the Letter of the Federal Tax Service for Moscow No. 19-12/109890 dated November 25, 2008.

For the purposes of calculating VAT, the activities of the copyright holder are considered as the provision of services, as activities the results of which do not have material expression, and are also sold and consumed in the process of carrying out this activity (Clause 5 of Article 38 of the Tax Code of the Russian Federation). The copyright holder is obliged to charge VAT on the amount of the remuneration and issue the user a properly executed invoice for the amount of the royalty - on the date of settlement in accordance with the terms of the agreement.

As for relations with foreign companies, the situation here is as follows.

By virtue of paragraph 1, paragraph 1 of Art. 146 of the Tax Code of the Russian Federation, transactions involving the sale of goods (work, services) in the territory of the Russian Federation are recognized as objects of taxation of value added tax.

The procedure for determining the place of sale of work (services) for the purpose of applying value added tax is established by Art. 148 Tax Code of the Russian Federation. The place of sale of services for the transfer, provision of patents, licenses, trademarks, copyrights or other similar rights is recognized as the territory of the Russian Federation if the buyer of the services carries out activities in this territory (clause 4, clause 1, article 148 of the Tax Code of the Russian Federation).

When services are sold by a foreign person who is not registered with the Russian tax authorities, the place of sale of which is the territory of the Russian Federation, VAT is calculated and paid to the Russian budget by the tax agent purchasing these services from the foreign person (Article 161 of the Tax Code of the Russian Federation). The tax base is also determined by tax agents. The tax amount is calculated using the calculated rate according to the rules of clause 4 of Art. 164 Tax Code of the Russian Federation. The tax base is determined on the date of receipt of each monthly payment based on the amount actually received in rubles (paragraph 2, paragraph 1, article 154 of the Tax Code of the Russian Federation, paragraph 2, paragraph 1, article 167 of the Tax Code of the Russian Federation).

A Russian organization that has paid the corresponding amounts of tax to the budget as a tax agent has the right to deduct these amounts in the manner prescribed by Articles 171, 172 of the Tax Code of the Russian Federation, provided that the services were purchased to carry out transactions subject to VAT, and the deduction is made in full after acceptance of services for registration. The basis for their use will be documents confirming the payment of tax amounts withheld by the tax agent (clause 3 of Article 171 of the Tax Code of the Russian Federation and clause 1 of Article 172 of the Tax Code of the Russian Federation).

Personal income tax

Royalties received by an individual are subject to personal income tax. The organization paying royalties is a tax agent, therefore it is obliged to calculate, withhold from the recipient and pay the amount of tax (clause 1 and clause 2 of Article 226 of the Tax Code of the Russian Federation).

It is necessary to take into account that in accordance with the norm of Art. 221 of the Tax Code of the Russian Federation provides for professional tax deductions for remuneration for the performance or other use of works of science, literature and art, remuneration to authors of discoveries, inventions and industrial designs.

Accounting

In organizations whose subject of activity is the provision for a fee of rights arising from patents for inventions, industrial designs and other types of intellectual property, revenue is considered to be receipts the receipt of which is associated with this activity. Thus, remuneration should be included in income from ordinary activities in the reporting period in which they were accrued under the terms of the agreement (clauses 12 and 15 of PBU 9/99).

An organization's expenses for paying royalties related to its core activities are recognized as expenses for ordinary activities in accordance with clause 5 of PBU 10/99, approved by Order of the Ministry of Finance of Russia dated May 6, 1999 N 33n.

Example

In October 2011, Alpha LLC transferred to the Company the right to use a set of exclusive rights to intellectual property (this service is the main activity). Monthly payments are set in a fixed amount in euros and are subject to receipt on the terms of 100% prepayment in rubles at the official exchange rate of the Bank of Russia on the day of payment. The monthly payment under the contract is set at 118 euros (including VAT) and is due no later than the 15th day of the month preceding the billing month. The euro exchange rate set by the Bank of Russia as of October 15, 2011 is 41.6638 rubles/euro.

Dt 51 “Settlement accounts” Kt 76-5 “Settlements with other debtors and creditors”

RUB 4,916 (118 euros* 41, 6638) - Advance payment received from
user for November

D-t 76-VAT K-t 68-2 “Calculations for VAT” 750 rub. (RUB 4,916 x 18/118) - VAT is calculated on the prepayment received

D-t 76-5 K-t 90.1 “Sales” 4,916 rub. (118 euros* 41, 6638) - Income for
november

Dt 90-3 “Value added tax” Kt 68.2 750 rub. (RUB 4,916 x 18/118) - VAT calculated on income

D-t 68-2 K-t 76-VAT 750 rub. - Accepted for deduction of VAT calculated from the prepayment amount for November