Generally speaking royalties are a remuneration for the use of an intangible property (IP), such as technology or industrial know-how
Invoicing of such royalties by a French company, owner of such IP, to foreign companies that use it raises numerous issues, both theoretical and practical.
Indeed, the country where the company using the IP and paying the royalty is located usually levy a tax called “withholding tax” and the French company which receives the royalty is itself taxable in France upon this same income, which creates a double taxation.
The French company can then theoretically reclaim part or all of this foreign taxation, either through a tax credit or a tax deduction.
In some instances, royalties can cover different kind of IPs and/or services and can be charged to several companies established in different countries. In this case tracing the different withholding taxes and their utilization as tax assets in France can be very complex and become a source of mistake, creating hidden tax costs (undervaluation of tax assets) or tax risks (overvaluation of tax assets).
A full audit, even if potentially time consuming and costly, can generate significant net savings by ensuring a full (but not excessive) utilization of tax assets related to foreign withholding taxes.
Such task implies a close cooperation between accounting/tax management of the French company receiving royalties, its tax advisors, the representatives of the foreign companies paying royalties and their own tax advisors.
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