We deal with a number of UK artists and music producers, through our sister company David Weise & Associates (UK), who earn passive income out of the United States, such as royalties. There are a number of third party withholding agents, such as ASCAP, who despite being aware of the Tax Treaty in relation to such income, still continue to deduct tax at source. This can cause a big issue for some clients, as the withholding tax is usually charged at 30% meaning cash flow is hit, but more importantly they may end up overpaying tax. The tax over-payment occurs because passive income, such as royalties, does not attract any cost of sales or overhead expenses, meaning the UK tax charge often ends up being lower than the tax withheld. The issue here is that obtaining a rebate of the tax over-payment can be very costly and time consuming! The solution – obtain a US ITIN to stop third parties deducting withholding tax.
Obtaining a US ITIN is achieved by an individual completing Form W7, which on the face of it seems a quite straight forward task. However, from experience, it can be a very long-winded and frustrating process. Completing the main part of the form is relatively straight forward, with the first section being the important bit. Ordinarily, we would tick box (a) to identify our client as being a Non-Resident Alien, and complete the Additional Information section at the bottom with the treaty country and the treaty article number that applies to Royalties. In addition to this, you must complete section (h) other, which is the important part. This section identifies the ‘exception’ which applies to the particular source of passive income. If you do not complete this section, Form W7 will be returned as a rejected document – usually 90 days later!
You have completed the W7 correctly, so what next? Obviously you will need to include some form of identification with your application, so historically it was possible to rock up to your local Notary Public to have a copy of your passport legalised. Unfortunately, this is no longer possible, as the IRS will only accept original documents. You see the problem here is that a lot of artists and bands need their passports to do their job, so parting company with a passport for 3 months isn’t going to work. The IRS do state that the issuing authority can legalise the passport, however we have requested this from the UK Passport Office on many occasions and they refuse to do it. There is a list of other documents that will be accepted by the IRS, but none of them really help a UK citizen to confirm their foreign status and ID, apart from an up to date Visa. The only other option is for the individual to book an appointment at an IRS office the next time they are working in the US, although from experience the meeting will often get missed due to work commitments and touring schedules.
If you need any help with applying for a US ITIN or completing Form W7 and the application itself, please contact me at firstname.lastname@example.org.