Payments to Non-Resident Film Renters – did you know the rules have changed?
If you make payments to non-resident film renters, then you have new withholding tax obligations. On 2 November 2012, new legislation was enacted to change the tax treatment of income that a non-resident film renter derives in New Zealand. Payments to a non-resident film renter are now subject to Non-Resident Withholding Tax (NRWT).
Historically, 10% of any amount derived in New Zealand, by a tax non-resident, from the renting, exhibiting or issuing of a film (or making other arrangements for its exhibition), was considered income of the non-resident. The remaining income (90%) was specifically exempt income and therefore not taxable in New Zealand. Therefore the effective tax rate on non-resident film renters’ income was 2.8%. Many people were not aware of this and have been incorrectly deducting NRWT from payments to non-resident film renters.
A film is broadly defined to include things such as DVDs, Blu-Ray discs, television programmes and movies shown on TV, and movies shown in cinemas.
The rules for non-resident film renters have existed since 1928 and the original policy intent was to establish a standard proxy for net income due to the difficulties in determining net profit derived by non-resident film renters in New Zealand. In addition to this, the 1948 Double Tax Agreement (DTA) between New Zealand and the United States allowed only for New Zealand to tax film renters to the extent the income was taxable under the rules in New Zealand at that time. Therefore, it was important, at the time, that New Zealand had this mechanism for taxing non-resident film renters as there would be no NRWT under the DTA.
Most amounts subject to the non-resident film renters’ rules would be considered a royalty under current legislation and DTAs. As such, the maximum effective tax under the NRWT rules would be 15%, however this could be reduced to 10% or 5%, dependent on the applicable DTA.
Policy officials considered that the rules were no longer relevant or needed. The regime has now been repealed and, in most cases, the income will be subject to NRWT.
The repeal of the regime however brings a different treatment for New Zealand residents who make payments to non-resident film renters. While historically no NRWT was required to be withheld, the repeal of the regime now places a withholding obligation on the New Zealand residents making the payments instead of requiring the non-resident film renter to prepare a New Zealand tax return each year.
Dependent on the terms of their agreements with the non-resident film renters, these payments may need to be grossed up for NRWT, effectively placing the tax burden on the New Zealand resident, as opposed to the non-resident film renter.
The new tax treatment applies from the date of enactment of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012, being 2 November 2012. Therefore if you are making payments to non-residents for the right to rent, exhibit or distribute films, any payments made after 2 November 2012 will be subject to NRWT.
If you have any questions or concerns in relation to the past or future treatment of payments to non-resident film renters, please contact your Deloitte tax advisor.
Tax Alert December 2012 Contents
- Tax Alert - December 2012
- Allowances: balanced issues paper proposals blighted by accommodation bombshell
- Hope for best, prepare for the audit
- Earthquake issues continue to shake up the tax rules
- Changes loom for mining taxation
- Attributable FIF income method – election may be required!
- Changes made to record keeping allowances
- Taxing multinational companies
- Australian Government releases Exposure Draft of new transfer pricing legislation for Australia