Hosted by: Eversheds
Here’s a round up of the US event we hosted at Eversheds last week for anyone who missed it.
Presentation 1: Eric Longley, Prager & Fenton, Central Witholding Agreements
“Going to America used to be a fantastic process; you would get your Visa, head over there, make some money and return home with all of it and pay absolutely no tax whatsoever.”
Nowadays, the IRS have wised up and realised that people visiting the USA to trade were making money so they migrated from a ‘pay what you want’ system to a withholding system. This is not a new system and has been around for 27 years but the rules have only just started to be applied and you have to be aware – the US IRS are extremely thorough with this system.
Under the double tax convention in America, the rule is that if you go to the USA and perform as entertainers, you must pay tax on the earnings made there. To enforce this, the IRS set up the Central Withholding Agreement; this means that they are now entitled to withhold 30% of the gross amount that would have been paid to you by the US promoter and you can claim it back in a tax return at the end of the US tax year (calendar year). US venues and promoters are very compliant with this system, for them it is simply not worth the risk to go against the IRS.
The CWA is a voluntary agreement that you can enter into with the IRS to prevent this from happening. It is NOT mandatory but the loss of 30% of gross income on a tour could be crippling to a small artist/label and you have the option to reduce the amount withheld based on an estimated budget that you submit to them. Being a voluntary agreement, the IRS hold a lot of power over negotiations and are within their rights to demand 30% of gross income if you fail to comply with any of their terms. This is not a tax – it is a payment on account of tax.
For example, you might argue that your merchandise contains a logo that you designed and that you own the copyright, meaning, by rights it is not taxable. Under state law, this is a reasonable argument, however, the IRS will tax you on ALL income including merchandise sales, live performances etc.
Flying under the radar and being dishonest with your budget is not an option due to strong penalties. You can do it, but it is not recommended – the costs of righting the situation will be extremely heavy. The IRS have a lot of information at their disposal (they do have Google!) and have no issue with turning up to a concert to check that you have told them the truth. With a CWA, expect to do a lot of talking on the phone as, though you can email them, they cannot email you.
What you need for a CWA:
A budget – The IRS have seen many tours and have a lot of information to go back on, they will be able to spot any misinformation fairly easily. You need to be as honest as possible. You may well be required to update the IRS during your tour, handing in management accounts, monthly or even weekly. If you don’t do it – the CWA will stop immediately and the IRS will go back to taking the 30%.
Time – You need to give at least 45 days notice. You can at their discretion, apply to play in the US less than 45 days notice before your tour if you are given special permission but this is not recommended. They will not prioritise your request and may well put you to the back of the queue.
Tax Returns – The US return for your artist must be up to date. For example, if your band went to the USA last year, you must file a return for that band, even if they did not get paid to play (e.g. SXSW). Otherwise they will not qualify for a CWA. The IRS will look back through records from the past three years and you must be US tax compliant.
A Designated Withholding Agent – The money from the promoter gets paid to the US withholding agent who will need to be a US resident taxpayer that the IRS approves of. This person is often a CPA (accountant). The accountant pays the money through to the band and withholds the amount agreed by the CWA and is liable for the money that should be withheld.
SSN & TIN – The entertainers and crew all need a SSN (Social Security number) and a TIN (Taxpayer Identification Number) each. The IRS are not allowed to tell other departments about taxpayers they are dealing with, so to make sure that Homeland Security are aware of the entertainer coming into the country, all the supporting musicians and crew must follow this process:
First apply for a social security number from Social Security and get refused.
As this happens, Social Security inform Homeland Security so now they are aware
Then you can get a refusal letter, which you can then hand over to the IRS, who will give you a TIN number.
Contracts – A CWA will require a complete copy of the recording contract an artist has with a label as they want to know whether or not you are receiving tour subsidy. They will also want to see any sponsorship or endorsement contracts.
Tickets – they will want to see all details of any VIP or complementary tickets.
Previous accounts – They will want to see a comparison to any previous tours your act has undertaken in the USA.
Presentation 2: Juan Martinez, US Embassy, US Visa’s
The website for the US embassy in London holds all of the information needed to apply for a US visa. It’s important that you read everything relevant to you before embarking on the process.
Prepare. Prepare. Prepare.
The US federal government is bureaucratic, the better you can help them, the better they can help you. Be compliant! Anything you are asked for, provide it on time. If you are summoned to the embassy: attend.
Two visa types apply to entering the country as an act: The O visa, for individuals of extraordinary ability and the P visa, for performers. These are both petition based visa’s and so the process of applying does not begin with the visa – it begins with the petition, dealing with a different federal organisation; the USICS (US Citizenship and Immigration Services) www.uscis.gov
After you have secured your petition, you then need to go to the Embassy website to book your appointment and present yourselves at the embassy – allow time to pass security and intake as it can take a very long time. Be aware that all electronic equipment that transmits have to be secured before you enter the embassy (this means leave it outside with someone NOT with the embassy) and be prepared to have your photograph taken and fingerprints scanned.
Full disclosure at the embassy is very important. Problems that you try to cover will be discovered and may threaten your entire application process. Past issues such as drugs, arrests, even cautions and warnings, will slow you down in the process but trying to fly under the radar will be worse in the long run.
The term “Administrative processing” is common when you are waiting to hear about your visa and you will receive a letter explaining why there is a hold up. The embassy rarely has control over the issues that cause administrative processing so there is no point chasing the embassy too much.
Requests made by the music industry to improve the process for musicians has resulted in later appointments being made available and becoming more flexible, so that artists are not expected to pay to stay in London and be present at the embassy very early in the morning. There will also be a crib sheet available to artists, to prepare them for the interview questions and application process. Streamlining and shortcutting the process is completely unavailable as the US embassy is obligated to treat every applicant the same.
B1 and B2 visas – these visa’s are available as a faster route to entering the US, but can only be given to those who are showcasing i.e. playing without pay. You can find out if you qualify on the website. They are fast tracked because they negate the entire petition part of the process.
Reuse program – this is an even quicker route to re-applying for a visa and means that you don’t even need to go into embassy for an interview. There are three criteria for qualification:
– Your visa expired in the past 12 months
– You’re applying for the same visa type
– You’re requesting your visa from the same embassy (e.g. London, Paris, etc.)
Timing for receiving your visa is on a case by case basis. There is no average length of time. Application for petition should entered into as soon as there is an option that you will be visiting the US. The more lead-time you have, the easier it will be to troubleshoot any issues.
Presentation 3: Dave Zierler, President, InGrooves Fontana, Digital and Physical distribution in America
On top of the technology services provided InGrooves has layered service companies. InGrooves Fontana is the music service company and competes with the likes of Orchard and Sony Red. Early 2012 InGrooves purchased Fontana to provide a full service in the digital and physical landscape and most recently, they have expanded InScribe; an e-book company start up.
Trends in the US market have shown that from 2011 to 2012, album sales in mass merchants and chains are decreasing. They are carrying less physical product and not taking any risk up front, meaning that they now mostly just carry the hits. They are more aware of artists’ cycles in the US and how much presence they have. Digital sales have grown steadily and accounted for almost 40% of album sales and that has already increased in the first couple of weeks of 2013 so that now, digital now accounts for more than 50% of total album sales.
Deep catalogue album sales now account for more than 50% of total online album sales due to the availability of catalogue on the Internet.
Unsurprisingly, ten years ago, the top ten largest retailers in terms of revenue did not include any digital retailers. Now the top accounts, based on both physical and digital, include major digital platforms; iTunes, Youtube, Spotify, Amazon are dominating the dollars being made in the music industry. InGrooves deal with navigating these complex business models and making sure artists and labels get paid properly from them. Rhapsody, Deezer, Google and Cricket (in-mobile purchase subscription) are all growing accounts. Verizon mobile boomed for a small window but did not provide a long-term solution for the music industry.
Industry growth trends include streaming. More music is being consumed now than has ever been consumed before and artists are become more active and involved in the distribution platforms encouraging consumers to spend on subscription services. Previously, artists have been concerned with staggering release dates with streaming as they thought it would impact their sales and chart position. This is now diminishing as more artists match their releases online, however, it is still too early for hard data on what impact windowing releases can have on a campaign.
There is more and more success with deluxe versions on iTunes, as iTunes consumers are becoming less price sensitive and will pay for quality content.
In terms of physical product, there is a constant struggle and the margins are difficult to deal with. However, vinyl is doing better, and due to creative campaigns and unique direct to fan marketing campaigns, better high quality product, scans for full albums in 2011 were the highest they’d been since 2003. So things are slowly heading in the right direction and trending upwards. Creative thinking is necessary and it’s important to have the right team around you to assemble the right strategy for your artist and their fan base and maximise all the revenue streams available.
It can take a good twelve to eighteen month effort to launch an album in the states. There is a lot of noise to compete with and just making the content available will not guarantee success. InGrooves have recently built an artist services division due to the development of the self-releasing model. Artists are looking for the retention of rights, cost control and a larger share of profits in the backend, which a distribution company can give them without tying them into a long-term deal. The US market continues to increase year on year and more individuals break free of major labels business model creating more opportunity for companies such as InGrooves to get involved and provide dedicated expertise. They are proud that they can providing transparency and flexibility to an artists US campaign through in-house and radio promotion, sync deals, project management and online and brand partnerships.
View the INgrooves | Fontana Company Overview presentation here.