2.04 - P-Card Purchases to Foreign Suppliers

TSOP NO:

2.04

SUBJECT:

P-Card Purchases to Foreign Suppliers

SOURCE:

University Tax Services - Financial Management Services

ORIGINAL DATE OF ISSUE:

09/18/2019,: CB, GL

DATE OF LAST REVISION:

11/16/19 [samn]

RATIONALE:

To provide Indiana University departments with instructions on how to properly report foreign royalty purchases using the P-Card. Payments for services should never be paid with a P-Card.

PROCEDURES:

Please note, the P-Card amount limit changed from $1000 to $5000 and up to $20000 with approval. Also, there is no de minimis amount for foreign purchase, you must report at dollar 1. Failure to comply could result in fines and penalties from the IRS to your department.

This process is ONLY to be used when you cannot use a Check Request or a PO. Also, services should never be paid for using the P-Card.

  1. If the department is making a purchase for a royalty-related item (software, music rental, film rental, database, etc.), gather the following information:
    1. SOFTWARE, MUSIC RENTAL, eBOOK:
      1. Do you pay a periodic fee? If yes, proceed to step 2.
      2. Is it a one-time perpetual ownership? If yes, no further action required.
    2. SUBSCRIPTION/MEMBERSHIP:
      1. Once you stop paying your periodic fee, do you lose access to the content which you have been previously provided? If yes, proceed to step 2. If no, no further action is required.
    3. FILM RENTAL:
      1. Are you simply purchasing permission to screen the film? If yes, proceed to step 2. If no, no further action is required.
  2. The payment is considered taxable. The department will need to “gross up,” or pay more in order for the net payment to the supplier (after tax) to equal the agreed-upon amount. The gross-up calculator can be found here: https://fms.iu.edu/tax/nra-withholding-calculator/
    For example, if you are paying $100 for your software, the amount you will actually pay will need to be $142.86.
    1. The standard withholding rate is 30%, therefore the calculation will made dividing the amount that has been agreed upon and divide by .7 (this rate may change depending on whether the supplier claims tax treaty benefits by providing a W-8BEN-E in Step 3 below)
    2. 100 / .7 = 142.86
    3. Therefore when you pay 142.86, the tax rate of 30% is applied to that number, resulting in an after-tax payment of $100 to the supplier, with the $42.86 going to tax.
  3. Set up Supplier
    1. Search to determine whether the supplier has already been set up in BUY.IU
    2. If you do need to set up the supplier, do so using Profile 2
    3. For details on how to create the supplier, see BUY.IU training material
    4. Once the supplier number has been generated, continue to step 2
    5. Email taxpayer@iu.edu with the supplier number, amount paid, and details on what was purchased.

EXAMPLES:

SOFTWARE:

Taxable) You are purchasing research software from a supplier in Poland. You pay a yearly fee of $1,000 for access to the software. This would be considered a taxable transaction. To calculate the total cost, divide $1,000 by .7, which gives you $1,428.57. This should be the total amount of the transaction, $1,000 going to the supplier, the rest will be remitted to the IRS.

Nonreportable) You are purchasing research software from a supplier in Poland. You pay a single fee, and then own the software permanently. This is considered a nonreportable transaction, no further action is required.

MUSIC:

Taxable) You are renting sheet music, the score of The Phantom of the Opera from a supplier in the UK for $2,000. The show is to be performed by the Jacobs School of Music for two weeks. Once the performances have come to an end, you will be returning the sheet music to the publisher. This is considered a taxable transaction. To calculate the total cost, divide $2,000 by .7, which gives you $2,857.14. This should be the total amount of the transaction, $2,000 going to the supplier, the rest will be remitted to the IRS.

Nonreportable) You are purchasing sheet music, the score of The Phantom of the Opera from a supplier in the UK for $5,000. The score will become a permanent part of your library. This is considered a nonreportable transaction, no further action is required.

eBOOK:

Taxable) You are renting an electronic textbook called Cost Accounting, 11th Edition from a supplier in Australia for $50. Once the semester ends, this book will disappear from your Kindle. This is considered a taxable transaction. To calculate the total cost, divide $50 by .7, which gives you $71.43. This should be the total amount of the transaction, $50 going to the supplier, the rest will be remitted to the IRS.

Nonreportable) You are purchasing an electronic textbook called Cost Accounting, 11th Edition from a supplier in Australia, for $100. This book is now yours to keep, permanently. This is considered a nonreportable transaction, no further action is required.

SUBSCRIPTION:

Taxable) You subscribe to access to an online Tax Research database from a supplier in Bulgaria. You pay a yearly subscription fee of $500. Once you stop paying this fee, you will lose access to the database. This is considered a taxable transaction. The supplier is claiming tax treaty for a rate of 5%. To calculate the total cost, divide $500 by .95, which gives you $526.32. This should be the total amount of the transaction, $500 going to the supplier, the rest will be remitted to the IRS.

Nonreportable) The College of Arts and Sciences’ Fashion Design department subscribes to Italian Vogue for $250 annually. Once they stop paying their yearly subscription fee, the magazines they’ve already received are theirs to keep. This is considered a nonreportable transaction, no further action is required.

FILM LICENSE:

Taxable) IU Cinema secures a license to screen Nosferatu from a German supplier for $300. They receive a DCP (digital cinema package) file for the screening, which requires an access code, and will expire after the screening. This is considered a taxable transaction. The supplier is claiming tax treaty for a rate of 0%. The supplier still needs to be set up in BUY.IU (Step 3 above), but gross-up is not required due to the 0% tax treaty claimed.

Nonreportable) IU Cinema purchases a 35mm film print of Nosferatu from a German supplier, with no immediate plans to screen the film. The reels are kept permanently, as part of the IU Libraries Moving image Archive. This is considered a nonreportable transaction, no further action is required.

CROSS REFERENCES: