Recently everyone is worried about the new withholding tax to be deducted by the YouTube US from the earnings of the YouTube creators from U.S. viewers. In this article firstly, we are going to discuss about the tax and then the impact on the creators and whether they are actually required to worried about this tax.

What’s the Matter?

❏ If you’re a YouTube creator outside of the U.S. you may begin to have taxes deducted from your U.S. earnings later this year.

❏ For this the search giant in an email to all YouTubers informed that it will be “required to deduct U.S. taxes from payments to creators outside of the US”

❏ No such tax for American YouTubers but still they are required to submit tax info.

❏ This additional tax may start getting deducted as early as June 2021.

Power to impose Tax

❏ Google has a responsibility under Chapter 3 of the S. Internal Revenue Code to collect tax info from all monetizing creators outside of the U.S. and deduct taxes in certain instances when they earn income from viewers in the U.S.

❏ Although Facebook and other such platforms are already withholding taxes as per the U.S. policies.

So, what you need to do??

❏ “Over the next few weeks, it will be asking you to submit your tax info in AdSense to determine the correct amount of taxes to deduct, if any apply.

❏ Only S. earnings from AdSense will be taxed, these earning include income from ad views, YouTube Premium, Super Chat, Super Stickers, and Channel Memberships provided that tax info. are submitted on AdSense account.

❏ Earning from YouTube will be considered as Royalty from U.S. tax perspective.

❏ The following forms are to be filled in Google AdSense Account for providing the relevant information:

❏ Form W-8BEN: typically for individuals. To view this form click here.

❏ Form W-8BEN-E: typically for businessmen. To view this form click here.

❏ Tax information above would include your country of residence, PAN number, DTAA applicable and other details as required by YouTube.

How much will you be taxed?

❏ Depends upon:

❏ Nature of Income

❏ If your valid tax form has been submitted

❏ How much your channel earns from U.S. viewers

❏ If your country has a tax treaty with the U.S.

❏ Whether you identify as an individual or a business account type.

If you ignore and don’t submit tax info Business Account Type– Withhold 30% of monthly U.S. Earnings.

Individual Account type- Withhold 24% of your total monthly earnings across all regions

If you submit tax info Rate- as per the DTAA provision,

Taxable amount- tax will withhold from the money you make monthly from viewers in the U.S.

India- U.S. DTAA

❏ The DTAA, or Double Taxation Avoidance Agreement is a tax treaty signed between India and another country, so that taxpayers can avoid paying double taxes on their income earned from the source country as well as the residence country.

❏ As per India-U.S. DTAA –

❏ Article 7- “Business Profits” taxable only in the state of resident unless PE situated in source state.

❏ Article 12- “Royalties and Fees for Included Services” tax is restricted to 15% that can be charged by source state.

❏ Article 23- “Other Income” can be taxable in resident state or source state.

❏ For other types of income kindly refer to India-USA DTAA- https://incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx

Example

Youtube creator

Whether income from ‘Ad views’ is a Business income or Royalty income:

The YouTube creator’s video and their publication suggests that income from ad sense account is a royalty income. But in our view, it should not be royalty income on the basis of reasons discussed below:

  • What is Royalty Income?
    • As per India-USA DTAA, Article 12- ‘Royalties and Fees for Included Services’
    • The term “royalties” as used in this Article means:

payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof ;

  • Explanations-
    • ‘Use’ or ‘Right to use’– In the case ISRO Satellite Centre (ISAC) AAR ruled that, the customers had not been given any control over parts of the satellite / transponder. Accordingly, the customers did not “use” nor were they conferred with the “right to use” the transponder and hence, the amount paid was held to be not in the nature of “royalty” which was also reffered in the case of Yahoo India (P.) Ltd [2011] 11 taxmann.com 431 (Mumbai). The same in case of YouTube, creators have not given any right to use to the YouTube, the whole right reserved with the creator only. Therefore, it will not fall within the definition of Royalty at this point.
    • Copyright- Most of the videos on Youtube is not registered under the Copyright Act, 1957, therefore it cannot be treated as a consideration for ‘use’ or ‘right to use’ any copyright of various terms used in para 3(a) of India-USA DTAA.
    • Radio or television broadcasting– YouTube is an online platform which is not covered under ‘radio or television broadcasting’.bare reading- Therefore, it will not fall within the definition of Royalty at this point.
    • Taj TV Ltd. v. ADIT [2017] 162 ITD 674 (Mumbai ITAT)- Payment of transponder fee to US based company for utilizing its transponder facilities in India cannot be treated as a consideration for ‘use’ or ‘right to use’ any copyright of various terms used in para 3(a) of India-USA DTAA. It is also not use or right to use any industrial, commercial, or scientific equipment. Hence, the payment do not fall within ambit of royalty in terms article 12 of India-USA DTAA.
  • Why Business Income?
    • If a teacher who is teaching on YouTube with his own account and earning revenue from ad views, this can be considered as business or other income.
    • Let’s first understand definition of Business under the India-USA DTAA, Article 7- Business Profit mean, Income derived from any trade or business including income from the furnishing of services other than included services as defined in Article 12 (Royalties and Fees for Included Services) and including income from the rental of tangible personal property other than property described in paragraph 3(b) of Article 12 (Royalties and Fees for Included Services)
      • e. any income from trade or business except from services which fall within the definition of royalties and fees for included services defined under Article 12.
  • Further, while filing the form prescribed above, it is also giving us option to select applicable Article of the DTAA which gives us the freedom to select the nature of income. So in that case we can opt for ‘Article 7’ i.e. business income.
  • As per the agreement between YPP (Youtube Partner program) and the creator, YPP clearly states that it is sharing advertisement revenue with the creator and not paying the amount to use the content.

Agreement available at https://support.google.com/youtube/answer/72902?hl=en

“The YouTube Partner Program lets creators monetize their content on YouTube. Creators can share revenue from advertisements on their videos. Creators can also share revenue from YouTube Premium subscribers watching their content.” 

  • The ultimate crux why it should not be royalty income is the creator is not giving any ‘use’ or ‘right to use’ of its video to the YouTube.
  • At the end it all depend on nature of your income kindly consult your tax consultant before filing the form.
  • Impact:
    • If considered as Business income- Taxable only in India unless you have PE (Permanent Establishment) in U.S..
    • If considered as Royalty Income Taxable @15% in U.S. and credit of the same will be available in India.

Important!!

❏ The above thing is only applicable to people earning through AdSense from YouTube.

❏ If you submit the Tax info as required, then only income from U.S. viewer will be taxed, therefore one need not to panic more.

❏ If you are making money from YouTube, it is advisable that you visit Google’s support page for relevant tax information and documentation. The deadline to submit the same is May 31, 2021.

❏ Although one would be able to take credit of tax withheld in USA but one will have to make extra effort to claim such credit. For Claiming such credit Form 67 needs to be filed with Income tax department online along with relevant proof of tax being paid in US.

❏ To read the full details of above tax withholding from Google click here: https://support.google.com/youtube/answer/10391362?hl=en

❏ You can also watch video uploaded by YouTube creator on this topic: https://www.youtube.com/watch?v=SeKEtf8A3FU

Disclaimer

This article has been prepared on the basis of information available in the public domain and is intended for guidance purposes only. We have taken reasonable care to ensure that the information in this article is accurate. We, however, accept no legal responsibility for any consequential incidents that may arise from errors or omissions contained in this article. 

CA. Naman Maloo & CA. Vartika Vijay

Author Bio

Qualification: CA in Practice
Company: Jain Shrimal & Co.
Location: jaipur, Rajasthan, India
Member Since: 30 Mar 2021 | Total Posts: 1

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