International Royalty Payments

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Royalty Payments Made to International Entities and Individuals

Use account code 28531 Royalty Payments 

Royalties and Licenses to use are sourced where the copyright/intellectual property/patent/license is being used.  If used inside the U.S., then U.S. tax reporting and 30% tax withholding,unless treaty benefits are available and formally claimed. This is required per federal regulations.  If no tax treaty exists, then no treaty benefits are available. Some countries have a royalty tax treaty benefits article that reduces the tax withholding more than 0%.

Treaty Benefits can be formally claimed by individuals using the W-8BEN (U.S. Taxpayer Identification Number-TIN required) or by foreign business entities using the W-8BEN-E (Foreign country of residence or a U.S. Taxpayer Identification Number required).

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Software Royalties

Use University of Oregon Account Codes

 Generally, a payment to a foreign vendor for use of a software product or access to a foreign database is considered a rent or lease of the product/database or a royalty for use of the intellectual property. When the intangible property is used inside the United States, the source of income is considered to be U.S. source income subject to 30% withholding and reporting on Form 1042-S unless an exception applies. The possible exceptions are:

  • The terms of the software agreement are essentially a sale of all substantial rights to use the product in perpetuity. (Such as the purchase of software hardwired inside a printer).
  • The location of all servers providing the software service is attested in writing by the vendor to be outside the United States, in which case the source of income may be foreign (the IRS has issued no guidance in these matters)
  • The payment is exempt from tax or subject to a reduced rate of tax under an income tax treaty and the payee has submitted a Form W-8BEN (individual, TIN required) or a W-8BEN-E (entity, FTIN required) with a valid, formal treaty claim.
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1042-s Tax Form

Form 1042-s:  used to report income described under Amounts Subject to Reporting on Form 1042-S and to report treaty benefits or amount of tax withheld. 

All taxes withheld from payments are paid to the Internal Revenue Service (IRS) in the vendor's name. IRS form 1042-S is used to tax report the gross amounts paid to and taxes withheld from foreign persons or foreign entities that are subject to income tax reporting, even if no amount is deducted and withheld from the payment due to a treaty benefit. The 1042-S forms must be sent by the University of Oregon to both the IRS and to the recipients by March 15 of the year following the calendar year in which the income subject to reporting was paid. If March 15 falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. The University will make every effort to have these forms in the mail sooner than the due date.

Vendors may use the information provided on from 1042-s to fill out a U.S. tax return to claim treaty benefits and request a refund from the IRS.

Last updated 12/13/2023

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