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ITIN procedure for Royalties

Hi,

Here is my situation : I am based in Canada through a registered company (NOT a LLC) and I make games that are sold in the States for a portable device. I do NOT have a fixed base in the States, I am alone and registered the company only for banking purpose.

The deal with my publisher is that they send me 50% of the royalties paid to them for the games by the device manufacturer.

I have an EIN, those are easy to get, but I was told that it is not enough and that I need an ITIN to prevent withholding.

Here is my question : I do not produce income tax reports in the USA, I produce them in Canada.

Do I fall under Exception 1(d) of the W7 form? (as those are non-movie/music related Royalties)

Can I walk in an IRS office with the filled form? I could get an acceptance agent, but the cost and delays associated with it are prohibitive. (I live near the customs)

Why isn't the EIN enough to fill a W8-BEN form? I'm citing Article XII and Prot3 for the Canada/US Tax Treaty on the W8-BEN form, which put the withholding at 0%, so why do I need a tax number when I don't pay any? (to the States anyway :) )

Royalties paid from a U.S. source ARE subject to U.S. income taxes, so you will need an ITIN. Sorry, those are the rules.

You can submit the Form W-7 via mail to the address in the W-7 instructions under the exception to get the ITIN mailed to you. You cannot get the ITIN from a local IRS office, though that office WILL accept the Form W-7 from you.

It will take about six weeks for you to get the ITIN.

Quote:

I am based in Canada through a registered company (NOT a LLC)

Please explain the above quoted statement. Do you receive the royalties or does your company receive the royalties?

IntlTax raises a good point. I assumed you were filing the Form W-7 as an individual, but that may not apply if your company received the royalties

Quote:

Originally Posted by IntlTax

Please explain the above quoted statement. Do you receive the royalties or does your company receive the royalties?

I do.

My company is registered, which makes it more of a second name for me than a company name. I have a business bank account that was open with the company's informations, but any royalties I received goes on my own Canadian tax filling, I never produce a separate one for the company, as it's not considered an "entity", it's more of an alias.

Quote:

Originally Posted by AtlantaTaxExpert

Royalties paid from a U.S. source ARE subject to U.S. income taxes, so you will need an ITIN. Sorry, those are the rules.

You can submit the Form W-7 via mail to the address in the W-7 instructions under the exception to get the ITIN mailed to you. You cannot get the ITIN from a local IRS office, though that office WILL accept the Form W-7 from you.

It will take about six weeks for you to get the ITIN.

I think I got it, and I applied for an ITIN, thanks.

My question is : Why did they gave me an EIN? It took all but 5 minutes over the phone, they didn't even ask for an incorporation charter or anything in those lines.

Also, form SS4 (to apply for an EIN) says (on page 2) :
"IF the applicant :
Is a foreign person needing an
EIN to comply with IRS
withholding regulations

AND...
Needs an EIN to complete a Form W-8 (other than
Form W-8ECI), avoid withholding on portfolio assets,
or claim tax treaty benefits

THEN...
Complete lines 1–5b, 7a–b (SSN or ITIN optional),
8a, 8b–c (if applicable), 9a, 9b (if applicable), 10,
and 18."

Whats up with that? They mention a "foreign PERSON", not corporation or corporate entity, and they specifically mention withholding and tax treaty.

As I said, I asked for an ITIN, but this passage from the EIN application form is what screwed me up... (and the reason for me to ask for an EIN to begin with, even though it seems that I should have never been issued one)

Issuance of an EIN has been TOO easy In my opinion due to the problems you have just noted.

However, I doubt that the IRS will tighten up the requirements now.

Quote:

Originally Posted by AtlantaTaxExpert

Issuance of an EIN has been TOO easy IMHO due to the problems you have just noted.

However, I doubt that the IRS will tighten up the requirements now.

But what gets to me is that the SS-4 form seems to be pretty clear : Foreign persons can request an EIN in order to set withholding to 0%. The form even mention tax treaties.

It still doesn't make sense to me. Why would anyone ask for an ITIN for withholding if an EIN is enough, and if it isn't enough, why does the SS-4 instructions say that it is?