If you pay a foreign person for the right to use a film, a television program, a TV format, or videotape content, you have probably noticed that treaties treat this kind of money differently from an ordinary copyright royalty. The same word — "royalty" — can carry a 0% rate, a 10% rate, or the full 30% statutory rate, depending entirely on a few lines of treaty text.
The catch is that "film and TV royalties are excluded from the treaty" can mean two completely different things. Confusing the two is one of the most common — and most expensive — mistakes in international royalty withholding. This article walks through both, shows you how to tell which one applies, and explains why the distinction can flip your rate by 30 percentage points.
Why film and TV get special treatment
When you pay US-source income to a foreign person, the default US withholding rate is 30% (Internal Revenue Code §§1441 and 1442). A tax treaty can reduce that rate, but only where the treaty's text actually grants the relief — and royalties are one of the most heavily negotiated articles in any treaty.
Most modern treaties set a low or zero rate for copyright royalties (books, music, software) because the negotiators wanted to encourage cross-border licensing of creative works. But film and television have historically been treated as a distinct commercial category. Movie studios and broadcasters are large, organized industries, and many countries deliberately wrote their treaties so that motion pictures and TV content would not enjoy the same break as an author's book royalty.
The result is two different drafting techniques. One pulls film and TV out of the royalty article altogether. The other keeps film and TV inside the royalty article but denies it the lowest sub-rate. They look similar in plain English — "film and TV is excluded" — but they land in different places and produce different rates.
Mechanism A: film and TV is excluded from the Royalties article entirely
Under the first approach, the treaty's definition of "royalties" simply does not include payments for film or television content. Because the income is not a "royalty" as the treaty defines it, the Royalties article does not apply to it at all. The payment then has to find another home in the treaty, and that home is the Business Profits article (typically Article 7).
What happens next depends on the specific treaty:
Film and TV routes to Business Profits. If the payee is a business with no US permanent establishment (no US office, branch, or fixed place of business) and validly claims the Business Profits article, the rate is 0%. But if the payee instead claims relief under the Royalties article — which no longer covers this income — the claim is invalid and the rate defaults to 30%. Five treaties work this way: Egypt, Germany, Netherlands, Norway, and Switzerland.
Film and TV has no treaty rate at all. In a few treaties the income leaves the Royalties article but no other article rescues it with a reduced rate. The result is the full statutory 30% on any claim. Three treaties fall here: Greece, Pakistan, and Trinidad and Tobago.
That is the complete set of eight "Mechanism A" treaties. A crucial point: in every one of them, only film and TV is carved out. Copyright, patent, and know-how royalties paid under these same treaties stay in the Royalties article at the normal treaty rate. So a German software license is still a royalty under the US–Germany treaty; only the German film license is pushed out to Business Profits.
Worked example — Mechanism A
A German production company licenses the rights to a popular TV game-show format to Acme Broadcasting, a US network, for $200,000. Under the US–Germany treaty, the royalty definition excludes payments for films and works used for television. So this payment is not a royalty under the treaty.
- If Acme's payee files a W-8BEN-E claiming the Business Profits article (Article 7) and the German company has no US permanent establishment, the correct rate is 0%.
- If the German company instead files a W-8BEN-E claiming the Royalties article, that article no longer covers the income, the claim is invalid, and Acme must withhold 30% — a $60,000 difference on a single payment.
Note that if the very same German company also licensed Acme a piece of music for the show's theme, that music royalty would stay in the Royalties article at the treaty's copyright rate. Same treaty, same payee, two different homes.
Mechanism B: film and TV is excluded only from a 0% sub-rate
The second approach is subtler. Here, film and TV stays inside the Royalties article — it is still a royalty for treaty purposes — but it is excluded from the article's lowest sub-rate (often a 0% rate reserved for copyright). Instead, it falls back to the article's general royalty rate.
Canada is the textbook example. The US–Canada treaty's Article XII(3)(a) sets a 0% rate for copyright royalties — except for "payments in respect of motion pictures and works on film, videotape or other means of reproduction for use in connection with television." Those excepted film and TV payments do not leave the Royalties article. They simply lose the 0% sub-rate and fall back to the general royalty rate in Article XII(2), which is 10%.
So for a Canadian payee:
- An ordinary copyright royalty (a book, a song) is 0% under Article XII(3).
- A film or TV royalty is 10% under Article XII(2).
- Either way, the income is a royalty, and a valid claim cites Article XII (Royalties) — not Article 7 (Business Profits).
Canada is NOT a Mechanism-A country
This is worth stating bluntly because it is a genuine, recurring error: Canada is not one of the Mechanism-A "film and TV excluded from the article" treaties.
The two get conflated because both Canada and the Mechanism-A treaties contain some film/TV carve-out, so they read alike at a glance — "film and TV is treated differently." But the carve-outs operate at different levels. In a Mechanism-A treaty (say, Trinidad and Tobago), film and TV leaves the article, so there is no treaty royalty rate for it. In Canada's treaty, film and TV is only excluded from the 0% sub-rate and stays in the article at 10%. Trinidad's film royalty is 30%; Canada's is 10%. Reading the carve-out as if it removed the income from the article entirely would wrongly push a Canadian film royalty to Business Profits or 30% — and would reject the correct Article XII claim.
The reliable test: read the treaty's royalty article and ask whether film and TV leaves the article (Mechanism A) or only loses the 0% sub-rate (Mechanism B).
Worked example — Mechanism B
A Canadian studio, Maple Films, licenses a feature film to a US distributor for $500,000. Under Article XII(3)(a) of the US–Canada treaty, motion pictures are excepted from the 0% copyright rate, so the payment falls back to the Article XII(2) general rate of 10%.
- The studio files a W-8BEN-E claiming the Royalties article (Article XII). The correct withholding is 10%, or $50,000.
- If someone mistakenly treats Canada like a Mechanism-A treaty and claims the Business Profits article (Article 7) instead, that is the wrong article for this income. The claim is invalid and the rate defaults to 30% ($150,000) — triple the correct amount.
Comparing the two mechanisms
| Mechanism A | Mechanism B | |
|---|---|---|
| What is excluded | Film/TV is removed from the Royalties article entirely | Film/TV is removed only from the 0% copyright sub-rate |
| Where film/TV lands | Business Profits (Article 7), or no treaty rate at all | Stays in the Royalties article, at the general rate |
| Typical result | 0% (valid Business Profits claim, no US PE) or 30% (no treaty rate, or wrong article claimed) | The article's general rate, e.g. 10% |
| Article a payee cites | Article 7 (Business Profits) — where a rate exists | Article XII / Royalties |
| Example treaties | Egypt, Germany, Netherlands, Norway, Switzerland (→ Business Profits); Greece, Pakistan, Trinidad and Tobago (→ 30%) | Canada (Article XII, 10%) |
| Other royalties (copyright, patent, know-how) | Stay in the Royalties article at the treaty rate | Stay in the Royalties article at the treaty rate |
Why it matters
The article a payee names on a W-8BEN-E is not a formality — it is the legal basis for the rate you withhold, and the wrong article can swing the rate across the full range:
- A German film royalty is 0% if the payee correctly claims Business Profits (Article 7) with no US permanent establishment — but 30% if the payee claims the Royalties article, which no longer covers the income.
- A Canadian film royalty is 10% under Article XII (Royalties) — but 30% if the payee wrongly claims Business Profits.
- A Canadian copyright royalty under the same Article XII is 0%.
In other words, the same dollar of film income can be 0%, 10%, or 30% depending on which mechanism the treaty uses and which article the payee claims. If you withhold too little, you (the payor) are liable for the shortfall plus penalties and interest. If you withhold too much, you have over-deducted from a payee who then has to chase a refund from the IRS.
Two practical habits prevent almost all of these errors:
- Read the actual royalty article of the specific treaty before accepting a film or TV claim. Confirm whether film/TV leaves the article (Mechanism A) or only loses the 0% sub-rate (Mechanism B).
- Check that the article cited on the W-8BEN-E matches the mechanism. A Mechanism-A film claim should cite Article 7; a Canadian film claim should cite Article XII. A mismatch is a red flag that the rate is wrong.
Because these positions turn on precise treaty wording — and treaty texts and IRS guidance (see IRS Publications 515 and 901) can change — treat any film or TV royalty claim as a "read the text first" situation, and consult a qualified tax advisor when the wording is ambiguous or the amounts are large.
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This article is for general educational purposes and is not legal or tax advice. Withholding outcomes depend on the specific facts of each payment. Consult a qualified tax professional before making withholding decisions.