Does a Canadian Company Receiving Royalty Income from the US require an (EIN) Employer Identification Number?

Question

It would appear from what I have read, that the Canadian recipient of the royalty income need only file a Certificate of Foreign Status of Beneficial Ownership For United States Tax Withholding - Form W-8BEN with the US Person paying the royalty in order to claim treaty relief from the 30% withholding tax otherwise required to be withheld from the payment. Therefore application for an EIN is unneccessary

Answer 1

Tim,

You are correct that a Canadian recipient of royalty income need only file Form W-8BEN to claim treaty relief from the 30% withholding and does NOT need an EIN. Form W-8BEN is used by the beneficial owner of the royalties and NOT a pass-through entity such as a partnership, NOR is Form W-8BEN used if the recipient has a business in the U.S. (in which case you would have an EIN).

Under U.S. law, a 30% withholding tax applies to royalties. This rate is generally reduced to 10% under the U.S.-Canada income tax treaty and for certain royalties, to 0% (zero). See IRS publication 597 (http://www.irs.gov/pub/irs-pdf/p597.pdf), in particular page one (second paragraph) that states the rules are reciprocal and page 3 (the top left section on 10% and 0%withholding). You do not mention the type of royalty payment, but note that computer software royalties are at 0%.

Answer 2

I don't know about this situation directly. You appear to be confusing an EIN (employer identification number) with a TIN (taxpayer identification number). An EIN would be needed if the company had employees in the US. A TIN may or may not be needed in your case.