Is book translation royalties considered “royalty income” or “labor remuneration income”? This is a question!

    The above con­sul­ta­tion and reply come fromState Admin­is­tra­tion of Tax­a­tion offi­cial web­site, the con­sul­tant is myself.

   
This ques­tion did­n’t seem like a prob­lem to me, but I’ve encoun­tered it twice in the past six months, so I imag­ine my trans­la­tors might encounter it too. I hap­pen to be a law stu­dent and a prac­tic­ing lawyer, hav­ing helped hun­dreds of peo­ple pass Chi­na’s most dif­fi­cult bar exam (now the judi­cial exam­i­na­tion). I was once the top can­di­date in the A‑class bar exam. So, when it comes to ques­tions like this, I can’t help but dig deep­er.

    Let me briefly explain the prin­ci­ple.

   
Osten­si­bly, this issue con­cerns indi­vid­ual income tax rates. While “roy­al­ty income” receives a pref­er­en­tial tax rate of 30% as a gov­ern­ment incen­tive for authors, “labor ser­vice income” does not. The actu­al tax rates cal­cu­lat­ed for the two gen­er­al­ly dif­fer by 4.8% (the for­mer is typ­i­cal­ly 11.2%, the lat­ter 16%). To put it sim­ply, if “labor ser­vice income” is used as the basis for cal­cu­la­tion, the trans­la­tor’s roy­al­ties will be sub­ject to an addi­tion­al 4.8% with­held from the author’s roy­al­ties. This is cer­tain­ly a mat­ter of mon­ey, but it also rais­es the ques­tion of whether trans­la­tors’ work is equal­ly respect­ed.

   
So, does the state have explic­it reg­u­la­tions on this? Of course there are, but unfor­tu­nate­ly, the drafters of the reg­u­la­tions, per­haps assum­ing they are well-versed in legal the­o­ry, and that peo­ple from all walks of life (espe­cial­ly those in finance) also have a clear under­stand­ing of legal the­o­ry, have sim­ply used very legal­is­tic log­ic to cre­ate a “clear” reg­u­la­tion. Arti­cle 8, Item (4) of the “Reg­u­la­tions for the Imple­men­ta­tion of the Indi­vid­ual Income Tax Law” explic­it­ly lists “trans­la­tion” as “labor ser­vice income,” while Item (5) lists “income derived by an indi­vid­ual from the pub­li­ca­tion or pub­li­ca­tion of his or her works in the form of books, news­pa­pers, or peri­od­i­cals” as “roy­al­ty income.” How­ev­er, Item (5) does not men­tion the word “trans­la­tion” at all! Con­se­quent­ly, sev­er­al pub­lish­ing hous­es and relat­ed insti­tu­tions have used this as an excuse to argue that “trans­la­tion” roy­al­ties are not “roy­al­ty income.” This log­ic seems to align with com­mon sense, but from a legal per­spec­tive, it is clear­ly a mis­con­cep­tion. Legal­ly speak­ing, Item (5) includes “the pub­li­ca­tion or pub­li­ca­tion of trans­lat­ed works in the form of books, news­pa­pers, or peri­od­i­cals,” mak­ing it a spe­cial pro­vi­sion that takes prece­dence over Item (4) in terms of imple­men­ta­tion. The “trans­la­tion” referred to in item (4) refers to sit­u­a­tions such as: on-site oral trans­la­tion, trans­la­tion of unpub­lished doc­u­ments on behalf of oth­ers, etc.

   
Below is a repost of my dis­cus­sions with the rel­e­vant orga­ni­za­tions (the final out­come was a hap­py one for every­one involved). I’ve omit­ted any names here, so please refrain from spec­u­la­tion. I believe peo­ple are always kind, and mis­un­der­stand­ings are inevitable. We should all dis­cuss things calm­ly and ratio­nal­ly. This dis­cus­sion is for your ref­er­ence only, and you’re free to share it:

【Inquiry】

 

One ques­tion is about the cal­cu­la­tion of tax. Could you please ask your company’s finance depart­ment to con­firm it again?

 

The cur­rent algo­rithm, I guess, is this for­mu­la:X – [X × (1–20%) ×
20%]
Front(1–20%)The amount after deduct­ing the tax thresh­old is20%It’s the tax rate, there’s no prob­lem with that.
 

How­ev­er, accord­ing to the rel­e­vant reg­u­la­tions I have found, and the expla­na­tion on the offi­cial web­site of the State Admin­is­tra­tion of Finance and Tax­a­tion (but I only found2014Year12of the month), the orig­i­nal text is“Income from roy­al­ties is sub­ject to a pro­por­tion­al tax rate of 20%, which is reduced by 30% of the tax­able amount, result­ing in an actu­al tax rate of 14%.”The rel­e­vant URLs are as fol­lows:

http://www.chinatax.gov.cn/n840303/c1439853/content.html
 

Accord­ing to this expla­na­tion, the for­mu­la seems to be:X – [X × (1–20%) × 20% ×
(1–30%)] That is X – [X × (1–20%) × 20%
× 14%]
 

The gap between the two algo­rithms is still quite large. The tax rate of the algo­rithm with­out the pref­er­en­tial treat­ment is actu­al­ly16%, the result of pref­er­en­tial treat­ment is11.2%, so this ques­tion is quite impor­tant. Please help con­firm it when it is con­ve­nient for you.

 
[Publisher’s response]

 

Trans­la­tion fees should be con­sid­ered as labor remu­ner­a­tion income and should be with­held20%Indi­vid­ual income tax should not be with­held accord­ing to the remu­ner­a­tion.14%per­son­al income tax.

 

Accord­ing to rel­e­vant reg­u­la­tions: Income from labor remu­ner­a­tion refers to the income obtained by indi­vid­u­als from engag­ing in design, dec­o­ra­tion, instal­la­tion, draw­ing, analy­sis, test­ing, med­ical treat­ment, law, account­ing, con­sult­ing, lec­tur­ing, news, broad­cast­ing, trans­la­tion, man­u­script review, cal­lig­ra­phy and paint­ing, sculp­ture, film and tele­vi­sion, record­ing, video record­ing, per­for­mance, per­for­mance, adver­tis­ing, exhi­bi­tion, tech­ni­cal ser­vices, intro­duc­tion ser­vices (com­mis­sion), bro­ker­age ser­vices, agency ser­vices and oth­er labor ser­vices.

 
【Con­tin­ue dis­cus­sion】

 

The first judg­ment with­out doubt: labor remu­ner­a­tion income refers to the income earned by indi­vid­u­als engaged in design, dec­o­ra­tion, instal­la­tion, draw­ing, test­ing, med­ical treat­ment, law, account­ing, con­sult­ing, lec­tur­ing, news, broad­cast­ing,trans­late, man­u­script review, cal­lig­ra­phy and paint­ing, sculp­ture, film and tele­vi­sion, sound record­ing, video record­ing, per­for­mance, per­for­mance, adver­tis­ing, exhi­bi­tion, tech­ni­cal ser­vices, intro­duc­tion ser­vices (com­mis­sion), bro­ker­age ser­vices, agency ser­vices and oth­er labor ser­vices.

 

The sec­ond judg­ment is beyond doubt:Income from roy­al­ties is sub­ject to a pro­por­tion­al tax rate of 20%, which is reduced by 30% of the tax­able amount, result­ing in an actu­al tax rate of 14%.

 

The ques­tion that rais­es doubts is:Trans­la­tion roy­al­tiesIn the endTrans­la­tion remu­ner­a­tion in labor remu­ner­a­tion, or count asroy­al­ties?

 

This actu­al­ly rais­es the ques­tion of what exact­ly does “trans­la­tion” in the first judg­ment refer to? As we know, “trans­la­tion” also includes on-site inter­pre­ta­tion, trans­la­tion of writ­ten mate­ri­als not intend­ed for pub­li­ca­tion, and the pub­li­ca­tion of trans­lat­ed arti­cles or books. So, does the “trans­la­tion” in the first judg­ment tru­ly encom­pass all types of trans­la­tion? Does­n’t trans­lat­ed and pub­lished works fall with­in the scope of the gov­ern­men­t’s pref­er­en­tial incen­tives for cre­ators?

 

Upon clos­er exam­i­na­tion, the item list­ed along­side “trans­la­tion” in labor remu­ner­a­tion is indeed a “ser­vice.” Com­mon sense sug­gests that “trans­la­tion” and “writ­ing” are not only very sim­i­lar, but also com­pa­ra­ble in terms of cre­ative dif­fi­cul­ty. There­fore, it’s like­ly that “trans­la­tion roy­al­ties” should actu­al­ly be taxed at the same rate as “roy­al­ties”! — At least, in my many years of deal­ing with var­i­ous pub­lish­ing hous­es, I’ve nev­er encoun­tered a case where “trans­la­tion roy­al­ties” were clas­si­fied as “labor remu­ner­a­tion.”

 

If this infer­ence is not con­vinc­ing enough, we strong­ly rec­om­mend that your com­pa­ny seri­ous­ly con­sult with a tax pro­fes­sion­al, such as a “Cer­ti­fied Tax Agent.” The fol­low­ing web­site con­tains review mate­ri­als and sam­ple ques­tions (includ­ing answers) for the Cer­ti­fied Tax Agent exam for your ref­er­ence:

http://www.233.com/cta/tax2/Guide/20110829/095426256–3.html

 

Please note the fol­low­ing exam­ple ques­tions:

[Example·Multiple Choice Ques­tions] Among the fol­low­ing items, those that belong to labor remu­ner­a­tion include ( ).

　　A.Remu­ner­a­tion from per­son­al cal­lig­ra­phy and paint­ing exhi­bi­tions

　　B.Remu­ner­a­tion received for pro­vid­ing copy­right to a work

　　C.Remu­ner­a­tion received for trans­lat­ing and pub­lish­ing for­eign works

　　D.Remu­ner­a­tion received by uni­ver­si­ty teach­ers for review­ing man­u­scripts com­mis­sioned by pub­lish­ers

　　E.Income from per­son­al sub­con­tract­ing or sub­let­ting

 

What is the answer? We are most con­cerned about whetherC? No!! The answer is: [Answer]AD

 

Why not includeCIs this the pay­ment for pub­lish­ing the trans­lat­ed work we are dis­cussing now? Read fur­ther below for an expla­na­tion:

 

(3) The dif­fer­ence between roy­al­ties and labor remu­ner­a­tion: the key is whether the work is pub­lished

 

In oth­er words, for the same “trans­la­tion” remu­ner­a­tion, when it is con­sid­ered “roy­al­ty income” and when it is con­sid­ered “labor remu­ner­a­tion” depends on whether it is pub­lished!

 

This under­stand­ing is obvi­ous­ly in line with com­mon sense and pro­fes­sion­al ethics. Because any reg­u­la­tion may have “edge” or “inter­sec­tion” areas, just like “remu­ner­a­tion for trans­lat­ed pub­li­ca­tions”, which is exact­ly the inter­sec­tion between “labor” and “remu­ner­a­tion”. Which side should it lean towards?

 

This is a par­tic­u­lar­ly kind reminder, pri­mar­i­ly because it may affect your rela­tion­ship with oth­er trans­la­tors. Since the gov­ern­ment offers this pref­er­en­tial tax rate, it’s a win-win for pub­lish­ing com­pa­nies to help trans­la­tors pay tax­es accord­ing to the law. If both inter­pre­ta­tions are pos­si­ble, it’s worth clar­i­fy­ing this mat­ter care­ful­ly, both out of pro­fes­sion­al­ism and out of a sense of respon­si­bil­i­ty and friend­li­ness towards your coop­er­at­ing trans­la­tors. This is no small mat­ter for trans­la­tors.

 

【Inquiry on the State Admin­is­tra­tion of Tax­a­tion web­site】

Web­site:http://www.chinatax.gov.cn/

Hel­lo! I am a trans­la­tor and have ques­tions about the indi­vid­ual income tax on roy­al­ties from trans­lat­ed pub­li­ca­tions. I hope your office can pro­vide pro­fes­sion­al advice. Accord­ing to Arti­cle 8, Item (4) of the Reg­u­la­tions for the Imple­men­ta­tion of the Indi­vid­ual Income Tax Law, trans­la­tion is clas­si­fied as labor remu­ner­a­tion income, but accord­ing to Item (5),“Income earned by an indi­vid­ual from pub­lish­ing his or her works in the form of books, news­pa­pers or peri­od­i­cals”If the trans­lat­ed work is pub­lished in the form of a book, can the fifth clause be applied? Because some pub­lish­ers believe that only the fourth clause can be applied, and there­fore do not imple­ment the fifth clause.30%I don’t think this is a per­son­al issue; I believe many trans­la­tors have encoun­tered this prob­lem. Is there any author­i­ta­tive expla­na­tion I can rely on? Thank you very much for tak­ing the time to respond!

 

[Response from the State Admin­is­tra­tion of Tax­a­tion web­site]

12366Bei­jing call cen­ter reply:
Hel­lo, please refer to the “State Coun­cil’s Notice on Amend­ingReg­u­la­tions for the Imple­men­ta­tion of the Indi­vid­ual Income Tax Law of the Peo­ple’s Repub­lic of Chi­na>Deci­sion of the State Coun­cil of the Peo­ple’s Repub­lic of Chi­na600Arti­cle 8, para­graph 5, of the“Income from roy­al­ties refers to the income obtained by an indi­vid­ual from the pub­li­ca­tion and release of his or her works in the form of books, news­pa­pers and peri­od­i­cals.”
Please refer to the Deci­sion of the State Coun­cil on Amend­ing the Reg­u­la­tions for the Imple­men­ta­tion of the Indi­vid­ual Income Tax Law of the People’s Repub­lic of Chi­na (State Coun­cil Order No.600Arti­cle 8, para­graph 4, of the“Income from labor ser­vices refers to income earned by indi­vid­u­als from engag­ing in design, dec­o­ra­tion, instal­la­tion, draft­ing, lab­o­ra­to­ry test­ing, med­ical treat­ment, law, account­ing, con­sult­ing, lec­tur­ing, jour­nal­ism, broad­cast­ing, trans­la­tion, man­u­script review, cal­lig­ra­phy and paint­ing, sculp­ture, film and tele­vi­sion, sound record­ing, video record­ing, per­for­mance, adver­tis­ing, exhi­bi­tions, tech­ni­cal ser­vices, intro­duc­tion ser­vices, bro­ker­age ser­vices, agency ser­vices, and oth­er labor ser­vices.
The spe­cif­ic items that apply should be deter­mined based on the rea­sons for obtain­ing income.“Income from pub­lish­ing his works in the form of books, news­pa­pers and peri­od­i­cals”Indi­vid­ual income tax is paid based on the income from roy­al­ties.

 

(Feel free to for­ward this arti­cle)