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Impact of Foreign Tax Credits On Composer's Royalties
There has long been a dispute between songwriters and publishers as to whether songwriters are entitled to a proportional share of a publisher's savings resulting from foreign tax credits. A recent decision of New York's highest court, the Court of Appeals, resolved this issue in favor of the publisher. Under the ruling, absent express contractual language to the contrary, a songwriter is not entitled to share in the benefit of foreign tax credits taken by his or her publisher. Drafters and negotiators should take particular note of this development.
The plaintiffs in Evans v. Famous Music Corp., 2004 WL 330069, 2004 N.Y. LEXIS 261, were well-known composers and songwriters or their successors-in-interest ' including Ray Evans, Henry Mancini, Johnny Mercer and Richard Whiting. The plaintiffs sued their publisher, Famous Music Corp., for refusing to make accommodation for the benefits of foreign tax credits taken by Famous when calculating royalties due to the songwriters under their publishing contracts. The songwriters claimed breach of contract and breach of the implied covenant of good faith and fair dealing.
The songwriters asserted that they should share in the benefits of foreign tax credits taken by the publisher under the contractual provision that entitled the writers to 50% “of all net sums actually received by [the publisher] with respect to such song or musical composition … less all expenses and charges in connection with administering said rights or collecting such sums … and less all deductions for taxes.” In the songwriters' view, this language sets forth an unambiguous contractual scheme under which the parties split net profits evenly. Accordingly, the plaintiffs argued that foreign tax credits must be included because the credits offset tax liabilities that were deducted, but were then effectively reimbursed.
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