INTERNATIONAL TAX – Cross Border Tax Planning for Ownership and Exploitation of Music Copyrights

Case Studies | Prager Metis | Jul 26, 2021

Cross Border Tax Planning for Ownership and Exploitation of Music Copyrights

The decentralization of media production across the globe and the increased use of digital and online distribution creates an environment where media that has up to now been produced and owned in the US can now be produced, owned, and exploited from lower-tax foreign jurisdictions.  Added to this, the emergence of “remote working” as a viable mode of conducting business operations means it is no longer necessary to be physically present in a given location in order to effectively carry out business activities.  By basing a potion, or all, aspects of production, ownership and exploitation of media outside the US, it is possible to substantially reduce the US taxation on related income flows.

Relevant structuring and tax considerations included:

  • Transferring existing content from the US Company to the foreign jurisdiction.
  • Setting up a foreign production company to produce and own new content.
  • Setting up a foreign distribution company.
  • Allocation of assets and business activities between US production, distribution, and merchandising companies and their foreign counterparts.
  • Tax-efficient transfer of existing US assets to foreign marketing/distribution company
  • Realignment of contracts with creatives, artists,s and other content producers
  • Realignment of intercompany contracts
  • Realignment of customer contracts
  • For the option involving using a third-party distributor, ensuring that the US entity was not treated as a US-dependent agent of the foreign company thereby creating a taxable US presence for the foreign company.
  • Evaluating relative corporate tax rates in the foreign country and the US.
  • Structuring ownership of foreign entities in the most tax-efficient manner, including ownership by US individuals or companies or by nonresident or foreign individuals or entities.
  • Tax-efficient reinvestment of earnings and tax-efficient repatriation of earnings.
  • Set up of foreign production/distribution company in a country with a wide treaty network in order to reduce withholding tax on royalty flows from customer countries.
  • Type of foreign entity and US entity choice (e.g., US C Corporation, partnership, or US LLC). For options with Prager Metis assisted the customer in identifying the option that was aligned with the company’s operational objectives while at the same time ensuring maximum tax efficiency.

Outcome and Benefit

Prager Metis provided assistance to a major artist with the creation of a tax-efficient foreign production and distribution structure for global sales.  By leveraging the client’s global footprint and international touchpoints, we developed an international production and exploitation structure for the client’s existing and new music content that reduced the effective tax rate on amounts that would be reinvested from 42% to 10.5%.  Where income would be repatriated to the artist, the applicable tax rate was reduced from 42% to a range of 10.5% to 36% depending on (i) ownership profile of copyright assets and (ii) choice of repatriation methods.

2021-08-23T15:05:42-04:00