How to Eliminate Withholding Tax
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How to Eliminate Withholding Tax and Income-Tax Liability for Non-resident Licensors of Intellectual Property
Graycliff can enable non-resident companies to eliminate liability for income tax (and the accompanying withholding of tax) for rents and royalties that they receive for the sale and licensing of their intellectual property in the USA and Canada.
What can Graycliff do for you?
Graycliff can eliminate the need for withholding tax on payments for rents, royalties and similar payments paid or credited by a resident of the USA or Canada to a non-resident, including rentals or royalties for motion picture films and for film and videotape for use in connection with television.
Not only does Graycliff eliminate the need for the withholding of tax in the USA or Canada, but usually there is no income tax payable in the non-resident's own country.
Every part of our method has been adjudicated upon by the courts and gone through legislative review and legislative amendments arising from the review of judicial action in respect of the various parts of this method of eliminating income-tax liability.
Procedure to Obtain Exemption from Income Tax for the Sale and Licensing of Intellectual Property
Please note: this procedure does not require the actual transfer of any money to Graycliff Financial Corporation (except our fees). All "transfers" of funds ("payments" and "loans") can be legally done merely as bookkeeping entries (credits) and signed documents.
Until now, non-resident vendors and licensors of intellectual property have been paid for their property rights, but they have had to endure withholding tax being deducted from the money they receive.
Now they can license their intellectual property through one of our corporations (Graycliff).
Graycliff will then provide the intellectual-property licensor's product to the US or Canadian licensee, acting as an intermediary.
Then there is no withholding of tax when the licensee pays for the licence. Instead, the licensee merely pays the invoice of Graycliff (a resident).
However, instead of Graycliff then paying the monies received to the licensor, withholding tax of up to 30%, Graycliff loans the money to the licensor, as follows:
The money that is payable to Graycliff is loaned by Graycliff to the licensor at an interest rate that is at least as much as fair market rates for such a loan.
(If the transaction were for the provision of services (as a leased employee), then this interest rate would be necessary to avoid the deemed interest that would arise if the interest rate charged were below fair market rates for such a loan. Here, however, there is no such deemed interest because the licensee is not an employee of Graycliff. Rather, this interest rate is used instead of a zero interest rate to avoid the remote possibility that income tax authorities would call an interest-free loan the equivalent of a straight transfer, thereby making it taxable.)
This loan is secured by the amount owing to the licensor by Graycliff, and the interest payable by Graycliff on the unpaid royalties is at the same rate as the rate of interest on the loan from Graycliff to the licensor.
Consequently, the loan amount payable, including accrued interest, is always equal to the royalty amount owing, including accrued interest. So, there is never any net amount owing by either the licensor or by Graycliff to each other.
Deemed Cash Flow
Instead of money being actually transferred through Graycliff, the following simplified procedure can be used:
When Graycliff issues an invoice to the licensee for royalties, Graycliff also provides a signed Authorization and Direction to the licensee to pay the funds to the licensor in trust.
So, pursuant to that signed Authorization and Direction, and for the payment of the invoice issued by Graycliff to the licensee, the licensee would normally issue a cheque to the licensor in trust. This money would be held in trust for Graycliff by the licensor.
Then, pursuant to a loan agreement in which Graycliff agrees to lend the money to the licensor, Graycliff provides a signed Authorization and Direction to the licensor, as trustee, to pay the loan proceeds to the licensor. So, a cheque for that amount would be issued from the trust account of the licensor, as trustee, to the licensor (in its personal capacity). That cheque would be deposited into the licensor's general account.
However, since the licensor is the ultimate recipient of the funds, and since signed Authorizations and Directions are provided for every step along the path that the funds take, the only payment from the licensee that need be made is one from the licensee to the licensor for its own account.