home Self-development The amount of royalties. Accounting and taxation of royalties

The amount of royalties. Accounting and taxation of royalties

Royalty is a fee for using someone else's trademark or brand. In the article, we will understand what royalties are, in what cases this type of license fee is used.

Royalty is a type of monetary reward for the use of copyrights, patents, trademarks and brands, franchises, natural resources and other types of property ( ). In simple words, pianos are a regular payment for the provision of services or a trademark. The term "is used in many industries, most notably in franchising, for example:

when paying rent;
when collecting a fee;
when using someone else's brand or trademark;
when paying for the use of someone else's property (usually payment in the form of a share of profits).

Also, royalty in land law is used as a term meaning a rent for the right to develop natural resources, which is paid to the owner of the land or subsoil by the entrepreneur.

The franchisor (the owner of the trademark) and the franchisee (the one who pays for the use of a well-known brand) enter into a franchise agreement, according to which the franchisor undertakes to give the right to use his own trademark, conduct advertising companies and assist in staff training, as well as the design of retail premises. The franchisee, in turn, pays a fee for joining the trading network (one-time lump sum) or a certain amount of investment in business development. This gives the entrepreneur the right to engage in own business without special advertising costs and at the same time having regular suppliers. In the process of work, the franchisee pays royalties - payments from sales, as a rule, monthly or quarterly. The amount of royalties is established by the agreement.

Royalty payments: what they pay for

Percentage of profit or turnover. Such a royalty payment, when a percentage is paid on profits, is not so common. The thing is that the amount of profit largely depends on the level of expenses of the franchisee. When a business is just starting up or the franchisee overstates costs, profit margins are minimal or non-existent. In this case, the franchisor does not receive a decent payment in the form of royalties.

This type of royalty is beneficial to the franchisee and absolutely not beneficial to the franchisor, because. it cannot affect the size of the profit (). Therefore, the case when the amount of royalties is equal to a percentage of turnover is more common. It is more difficult to hide the real turnover of production from the brand owner. Today it is the most common type of royalty.

Margin Percentage. In this case, the franchisee pays a percentage of the trade margin. This option is more beneficial for the franchisor, as he can regulate wholesale and retail prices, and, accordingly, determine the size of the trade margin.

Royalties in the form of a fixed amount. In this case, the amount of royalties is fixed in the franchise agreement, and the agreement also determines the exact terms of its payment. It does not depend on product prices or turnover. The option can be beneficial both to the franchisor (receives a clearly fixed amount, regardless of the turnover or profit of the franchisee), and the franchisee (in case of high production turnover). The larger the volume of production, the lower the share of royalties in the unit cost of production.

This encourages franchisees to expand production, to conduct business more efficiently. Payments can be paid monthly, quarterly or once a year - this is established by the contract. The option is beneficial for companies that find it difficult to determine the exact amount of income.

Promotional payments to the franchisor– deductions of money for the promotion and advertising of the brand under which the franchise buyer works. These deductions can be included in the percentage of royalties, or they can be made in the contract as a separate clause as a separate payment.

Free royalty: intellectual property license

There is a special type of property that applies to such objects as literary and musical works, software for equipment (computers, telephones, other office equipment). For their developments and works, the owners receive free royalties - a one-time payment for the use of intellectual property legally.

There is no general formula for calculating free royalties. This option of acquiring intellectual property can be very beneficial if the object is used repeatedly. For example, this may concern anti-virus programs or photos or music. However, it should be remembered that royalty free does not mean that the intellectual property object can be used for free, it must first be bought from the copyright holder. Also, free royalties can be used for charitable purposes to expand the circle of people who could get access to intellectual property. .

What are the risks of royalties under license agreements

Tax officials find signs of interdependence in transactions under license agreements and charge additional income tax. If they prove that it is economically unprofitable to pay royalties - for example, payments are unchanged, and the profitability of the business is falling, the transaction will be recognized as unrealistic and additional income tax will be charged.

Taxation of royalty payments

From the point of view of the tax legislation of the Russian Federation, funds in the form of royalties are recognized as income of the licensor organization and are subject to corporate income tax in accordance with the provisions of Article 250 of the Tax Code of the Russian Federation.

In accordance with the procedure provided for by subparagraph 3 of paragraph 4 of Article 271 of the Tax Code of the Russian Federation, such income is recognized on the date of settlements in accordance with the terms of concluded agreements or presentation to the taxpayer of documents serving as the basis for making settlements, or the last day of the reporting (tax) period.

Also, the payment of royalties in the Russian Federation is recognized as an expense for a licensee organization in order to form a base for corporate income tax in accordance with the provisions of paragraph 37 of Article 264 of the Tax Code of the Russian Federation.

Royalty as a way to redistribute income tax

Friendly organizations can optimize the payment of income tax without compiling any reports and acts on the services rendered through payments under a franchise agreement to the owner of exclusive rights (royalties).

At the same time, the right holder receiving income should be an organization on a simplified system or an organization on a general regime, but with unprofitable activities. In the first case, savings will be achieved due to the fact that the tax rates on the simplified tax system are lower than the income tax rate (Article 346.20 of the Tax Code of the Russian Federation). In the second case, the proceeds from the transfer of rights will simply reduce the overall loss.

Official position: The Ministry of Finance of Russia confirms that for the recognition of expenses for the acquisition of license rights, the existence of an act of acceptance and transfer is not required. However, royalties can only reduce taxable income if the acquired rights are used in economic activity in strict accordance with the requirements of the law.

The financial department proceeds from the fact that both the agreement on the alienation of exclusive rights and the license agreement should provide for the procedure for the transfer of rights from the right holder to their acquirer. So, paragraph 4 of Article 1234 Civil Code The Russian Federation established that the exclusive right to the result of intellectual activity or to a means of individualization passes from the right holder to the acquirer at the time of the conclusion of the contract on the alienation of the exclusive right, unless otherwise provided by agreement of the parties. At the same time, Article 1235 of the Civil Code of the Russian Federation stipulates that the licensee may use the result of intellectual activity or means of individualization only within the limits of those rights and in the ways provided for by the license agreement.

Find a counterparty to check

Royalty - This periodic compensation, usually monetary, for the use of patents, copyrights, natural resources and other types of property, in the production of which these patents, copyrights, etc. were used. May be paid as a percentage of the cost of goods and services sold, percent from profit or income. And it can also be in the form of a fixed payment, in this form it has some similarities with rent.

As opposed to commission or fee Royalty is not a one-time bonus.

Royalty has become widespread in franchising, in which monetary compensation is charged for a trademark (trademark), logo, slogans, corporate music and other signs by which the end can distinguish the organization from competitors.

Royalty- This periodic payments to the seller for the right to use the subject of the license agreement. In the agreements, the R. rate was set in agreements as percentages from cost net sales of licensed products or is determined per unit of output; payment for the right to develop and extract natural resources.

Royalty- This periodic deductions seller(licensor) for the right to use the subject matter of the license agreement. Set at fixed rates percent from cost pure sales licensed products, their cost, gross arrived or is determined per unit of output.

Royalty or license feee is royalties paid from time to time for movie rentals, books, music discs, and the right to use a patent, invention, or license for a product or technology. Deductions are made by the licensee in favor of the owner licenses, through agreed time periods. The amount of payments is fixed in the form of an interest rate, the calculation is based on the economic gain from the listed activities (for example, the value of net sales or gross profit). Most often, the fee is fixed from the total cost of sales of products.

Royalties are also called royalties. The copyright holder receives a Royalty each time his intellectual property is used for commercial purposes (for each reproduction of a song or music, publication, and so on).

In some cases, the term royalty is used in relation to payments for the right to mine. natural resources and field development. In countries where it is considered the property of the state or monarchy (for example, in the UK), Royalty is a tax paid by enterprises that specialize in mining. In the United States, where the right to private property is in force, royalty is not included in the number of tax deductions, but is a rent for the use of resources.

Due to the fact that not all payments for the transfer of the right to use objects of intellectual property rights are Royalties in the terms of the TCU, many tax payers may have difficulty reflecting transactions with Royalties in the Corporate Income Tax Return.

In order to avoid errors when filling out the Tax Declaration for income tax enterprises Let's dwell on this issue in more detail.

Royalties in the benefits of the taxpayer.

Royalties are included in income:

from operating activities (line code 02 of the Tax Declaration for income tax enterprises);

other income(line code 03 of the corporate income tax return).

1) Income from operating activities includes royalties accrued under contracts in accordance with which works are performed and services are provided.

Conditional example. Under a license agreement, the developer of a computer program (the licensor) transferred the distribution treaty(licensee) the right to sub-license. Under a sublicensing agreement, the licensee transfers the rights to use a computer program treaty private user (sublicensee). With every sold licenses for the use of a computer program, the licensee accrues to the licensor a Royalty in the amount of 70 percent of the cost of the license granted to the end user. Royalties accrued by the licensee for the transfer of the right to use a computer program to an end user are included by the licensee in operating income.

2) Royalties are included in other income as passive profit (clause 14.1.268, article 14 of the TCU). In order to be convinced of this, it is enough to look at Appendix “ID” to line 03 of the Tax Declaration for Corporate Income Tax (line code 03.2).

Conditional example. Under a license agreement, the owner of a patent for an invention, the exclusive property rights to the agreement are recognized as his intangible asset, provided industrial enterprise license for a method of manufacturing industrial products. For the use of the invention, the industrial company monthly transfers to the owner patent Royalty. This Royalty is a passive benefit to the owner patent.

Royalty (Royalty) is

Licensing fees - amounts paid to the creator or participant of an artistic work based on individual sales work. To receive royalties, a work must generally be copyrighted or . Also, often the amount of license fees received is negotiated.

For example, the author tends to conclude treaty with a publisher to publish a book. In most cases, the author gets some credit for giving the publisher the right to publish the book. The rest of the money made from the book will be royalties, a percentage of the profits from each book sold. Sometimes this percentage is high and other times relatively low. Sometimes the upfront is low, but the licensing fees are higher.

Further, should the book be made into a film, the film's profit rights can be negotiated as both a flat fee and royalties. That way, the person could sell their idea directly to the director, and get paid sincerely. Alternately, the writer might license his ideas to the director and receive a percentage of the film's profits as royalties.

Even after the film left the cinema, the author could still continue to make money in royalties through DVD sales, or through licensing to show the film on television. Frequently repeats of licensing mean lower license fees over time.

An actor participating in a film might also be entitled to royalties through DVD sales, or through licensing to show the film on television. Also, TV show personalities often make royalties when series are re-launched. Sometimes when shows go into syndication, royalties continue to be made long after the show has ended. Again, royalties tend to decrease as shows are shown more frequently.

In some cases, people may go to court to sue for royalties when a patent or copyright is infringed. Thus, illegally used songs, for example, might mean being prosecuted for a portion of one's profits. Some musicians advertise their work as a one-time payment, which allows them to receive more airplay. This was the case with the surprise 2006 hit band, Well Go.

Instead of concluding treaty for licensing fees, the group decided to publish their first and second videos on the site, YouTube. This gave everyone access to the band's videos, and free downloads. The result was the band's extreme popularity and boosted record sales. Sometimes, the decision to produce something royalty-free can actually lead to more financial rewards.

Sources

Wikipedia - The Free Encyclopedia, WikiPedia

btimes.ru - Russian business news

mybank.ua - My bank

Encyclopedia of the investor. 2013 .

Synonyms:

See what "Royalty" is in other dictionaries:

royalty- For each premium product released for sale, the OCOG pays a royalty. The procedure for paying royalties is detailed in each agreement with a marketing partner. The Partner is obliged to fully report on this issue to the OCOG. [Department… … Technical Translator's Handbook

ROYALTY- periodic (current) deductions to the seller (licensor) for the right to use the subject of the license agreement. In practice, ROYALTY is established as a fixed rate as a percentage of the value of net sales of licensed products, its ... ... Financial vocabulary

Royalty- Royalty (royalty) - 1. Compensation regularly paid for the use of a patent, copyright, property of another person in the form of a certain percentage of deductions from the volume of income, sales of products, its cost, ... ... Economic and Mathematical Dictionary

Royalty- (eng. royalty) periodic compensation, usually monetary, for the use of patents, copyrights, natural resources and other types of property, in the production of which these patents, copyrights were used ... ... Wikipedia

ROYALTY- [English] royal power; deductions to the author] econ. 1) periodic deductions for an invention or KNOW-HOW purchased under a license, paid to the licensor (LICENSOR) within a certain period specified in the license ... ... Dictionary of foreign words of the Russian language

royalty - royalty, license fee; payment, remuneration, deduction, payment Dictionary of Russian synonyms. royalties noun, number of synonyms: 6 remuneration (26) … Synonym dictionary

ROYALTY- (English royalty) compensation for the use of patents, copyrights, natural resources and other types of property, paid as a percentage of the cost of goods and services sold, in the production of which patents were used, ... ... Law Dictionary

Royalty- See Royalty Glossary of business terms. Akademik.ru. 2001 ... Glossary of business terms

ROYALTY- (English royalty, from medieval French roialte, from Latin regalis royal, royal, state), a type of license fee; periodic interest payments (current charges) to the license seller, ... ... Modern Encyclopedia

ROYALTY- see ROYALTY. Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B. Modern economic dictionary. 2nd ed., rev. M .: INFRA M. 479 s .. 1999 ... Economic dictionary

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What is a royalty? Description and definition of the concept

Royalty are royalties paid periodically for the rental of films, the release of music discs, books, and the right to use a patent, invention, or license for a technology or product.

The deductions are made by the licensee in favor of the owner of the license, at agreed time intervals. The amount of payments is fixed as an interest rate, the basis of calculation is the economic benefit from this activity (for example, gross profit or net sales value).

Often the fee is a fixed percentage of the total cost of sales of products.

Royalties are also called royalties. The copyright holder acquires royalties whenever his intellectual property is used for commercial purposes (for each reproduction of music or song, publication, etc.).

Royalties are in some cases used in relation to payments for the right to extract natural resources and develop deposits.

In states where natural resources are the property of the monarchy or the state (for example, in the UK), royalty is a tax paid by enterprises that are engaged in mining.

In the United States, where the right to private ownership of subsoil works, royalties are not tax deductions, but are rents for the use of resources.

Royalty (eng. royalty, from the French medieval roialte, from the Latin regalis - state, royal, royal) is a type of license fee, temporary compensation, usually monetary, for the use of natural resources, patents, franchises, copyrights and other types of property.

Temporary interest deductions (current deductions) to the license seller, which are set as fixed rates, taking into account the actual economic result of its application. It can be paid as a percentage of the cost of services and goods sold, a percentage of income or profit.

It can also be, as a fixed payment, in this type it has some similarities with rent.

Royalties, unlike commissions, are not a one-time bonus.

Royalties are widely used in franchising, they charge monetary compensation for a logo, trademark, corporate music, slogans and other signs by which the end buyer can distinguish the company from competitors.

Royalty in land law and economics is a rent for the right to create natural resources, which is paid by the entrepreneur to the owner of the subsoil or land.

Royalty types

percentage of turnover with which the franchisee pays the franchisor a percentage of sales. The percentage of turnover is paid based on the results of the enterprise's work for a specific period of time.
a percentage of the margin (margin is a value that expresses the difference between two specific indicators) is of interest to a franchisee in whose store a different mark-up level of goods is set, only in a situation where he clearly controls the pricing policy of retail and wholesale sales.
a fixed royalty is a regular payment that is tied to an agreement and has a fixed percentage of sales. This amount is tied to the cost of the franchisor's services, the number of enterprises, the number of customers served, and the building area.

Royalty in copyright

A royalty in copyright is an author's fee owed to the holder of a copyright that belongs to another person's intellectual property (work of art, trademark, patent) for each public reproduction, publication, distribution or other use of his work.

Music royalties

Unlike other forms of intellectual property, music royalties have a strong bond with individuals—songwriters, composers, and music-based playwriters—in that they have exclusive copyright in the music they create and can license it for performance outside dependence on corporate clients. Record companies that create "sound recordings" of music use a special set of copyrights and royalties for the digital transfer and sale of recordings (subject to national laws).

A musical composition acquires copyright protection as soon as it is created or recorded.

But it is not protected from infringement of use when it is not registered with a copyright authority, such as the United States Copyright Office of the Library of Congress.

No legal entity or individual, other than the copyright owner, may not use the music without acquiring a license from the songwriter/songwriter.

There are the following types of payments:

royalties for "press rights";
mechanical royalties for recording music on CDs and tapes;
royalties for the reproduction of compositions on television or on stage by instrumental vocal ensembles or musicians;
license sync payments for adapting or using musical accompaniment in television advertisements, films, and so on.;
royalties for digital rights of streaming, network broadcasting, online listening and downloading.

Press rights in music

Sheet music is the first form of music to which royalties were applied. Later, royalties were gradually extended to other formats.

Any performance of music by a group or singer requires that it be played from a written form, namely sheet music.

Otherwise, the authenticity of its origin, which is necessary for copyright claims, will be lost, as was the case with folk songs that were distributed orally.

Royalty is a licensee's payment for industrial property objects that are transferred to him by the licensor (trademarks, patents) and technical know-how.

Royalty payments at a newly established subsidiary or branch may be greater than the amount of dividends paid. In addition, host governments favor payments for industrial know-how rather than transfers of dividends directly. Because of this, royalties are often a more convenient means of accessing the profits of affiliates and subsidiaries.

Royalties paid directly to the licensor are a form of explicit license payment. It is carried out depending on the amount of sales of products that are manufactured using licensed technology.

Royalties are calculated in two ways:

as sequential payment in installments - in a situation where the royalty is related to the extent of the actual application of industrial property rights;
as a one-time payment of the full amount (royalty lamps) - is used when reimbursing the right to use industrial property acquired from a foreign partner.

Successive royalty payments are calculated based on either a certain amount of payment per unit of the product, or a certain percentage of the selling price (in %). There are no regulations in terms of the share of the sale price for calculating royalties.

In fact, the following royalty rates are commonly used: mechanical engineering - 4 - 10%; chemical goods - 2 - 5%; household goods - 3 - 7%, electrical goods - 3 - 7%. Certain sizes of the share of the sale price for calculating royalties are established taking into account the methods, amounts and duration of payment.

And in the first, and in particular, in the second case of the calculation of royalties paid in succession, as the scale of the activities of a subsidiary or branch increases, the absolute amount of royalty payments increases.

Abroad, the tax on the amount of royalties is usually set in the range of 10 - 40%. At the same time, the tax on royalties paid in succession is often higher than on royalty lamps.

In some countries, especially in tax havens, royalty payments are not taxed at all.

In addition, by acting in Western countries tax credit systems when transferring profits in the form of royalties from a foreign affiliate, an international company acquires tax credits in the state in which it is located, for the amount of taxes paid abroad.

Russian legislation

In modern Russian conditions method of transferring profits due to the mechanism of payment of royalties, commissions for management services and so on is of particular importance. Until January 1, 2002

The tax legislation of Russia did not clearly regulate the procedure for acquiring know-how, licenses by organizations (in the Instruction of the Ministry of Taxation of Russia “On the procedure for paying and calculating the tax on profits of organizations and enterprises” No. 62 dated June 15, 2000 No.

commission payments and expenses and income in the form of royalties are not allocated). This reduced the effectiveness of state control over the export of funds abroad, and reduced potential budget revenues.

In addition, the taxation of royalties based on agreements on the elimination of double taxation is generally more preferential than the tax control of repatriated dividends, which is an additional incentive to use royalties to export income from Russia.

Royalty is one of the basic concepts of franchising. This is the name of the daily deductions for the franchisor.

The word "royalty" is a designation for different types of rewards. It comes from the adjective royal, which is translated into Russian as “state” or “royal”.

Since the 16th century, this has been the name of the tax in favor of the crown of Great Britain, which the subjects who were engaged in coal mining, with the permission of the monarch, were obliged to pay.

Royalty can be synonymous with:

rent payments;
tax on the creation of natural resources;
duties;
license fee;
part of the product or profit to which the owner of the property claims the rights, who gave it into the ownership of another person.

Royalties in franchising

Royalty is now known for the growing popularity of franchising, which is a mutually beneficial type of cooperation between entrepreneurs.

The meaning of franchising is that the franchisee (a start-up merchant) acquires a franchise (a ready-made business), and the right holder provides support to the ward at all stages of development and formation of a new enterprise, from the selection of personnel to contracts with suppliers.

A franchise is acquired by making an initial payment (sometimes in installments). Franchisees are also required to pay royalties.

Sometimes royalties mean only remuneration for the use of the brand.

Often, royalty is a payment for the franchisor's help in setting up a business: design and marketing services, staff training, education of promotional products, dissemination of information about the franchisee on the Internet.

So the franchisee pays for the management of the business or the supply of its functioning. It rewards the right holder for allowing him to enter the market under his own name, for granting the right to use the benefits due to everyone and to receive from ready business profit.

How royalties are calculated

There are three methods for calculating royalties:

Percentage from the financial turnover of the enterprise. This method more commonly used today than others. The franchisee pays royalties regularly, based on the results of a certain period of time. The rate is specified in the contract.
Percentage of margin. This type of royalty is chosen by franchisors, who can influence retail and wholesale prices. When there are different markup levels for a particular product, royalty as a percentage of margin is the best solution.
A fixed payment made by the franchisee to the business owner every month. Its size is specified in the agreement. It is determined taking into account the number of franchisees, the cost of a range of services and the demand for business, which are the owner of the user. This form royalty is convenient in situations where it is not possible to predict the profit of the enterprise.

What is a lump sum

The user pays this fee once. When royalties are a management fee, then the initial (lump-sum) fee is a payment for the fact that a person has become a franchisee. Its value is determined by spending on creating a productive business system, brand awareness, and the number of services that will be provided to a new partner. The more attractive the project for the franchisee, the higher the initial payment.

Often this money is used by the franchisor to create new franchises.

How is the lump sum amount determined?

The amount of the lump-sum fee includes all the costs of the franchisor for registering a franchise (subsidiary) company and ensuring its entry into the market. The following costs must be taken into account:

for the training of future employees;
for rent of a trading floor/workshop/office;
for business promotion events;
to conduct market research.

In addition to the above items, there are specific costs that are due to the activities of the enterprise. They are also compensated with a lump-sum contribution.

It is impossible to say anything definite about the principles for calculating this contribution. Its amount is determined taking into account the expected level of profit of the franchisor from the work of the licensee and the income of the new enterprise.

The amount of royalty and down payment is indicated in the agreement between the franchisee and the franchisor. Both payments are a reward for using the intellectual element of the business.

The amount of the lump-sum fee is specified by the franchisor. Royalty is often associated with financial results franchising.

Regular franchise payments - why pay every month

AT modern world more and more space is occupied by business relationships based on a franchise. For some, this word is still incomprehensible, but most entrepreneurs are already actively using franchise agreements in their activities.

Royalty is a monetary contribution that no franchise can do without, because, as everyone knows, free cheese is only in a mousetrap. Therefore, after the conclusion of the contract, every month you will need to pay a certain amount.

Everything you need to know about royalties, the features of its design and nuances, we will analyze in the article.

What is royalty?

Many active and temperamental people, in order to improve their own well-being, dream of starting their own business. In this case, there are three ways.

Start your own business from scratch. But! In this case, you will need to go through the whole story from the very beginning. In most cases, this takes more than one year. However, all novice businessmen want to profit from their own business almost immediately, from the first day. Therefore, this option is suitable only for very aspiring people.
Buy a business that is already fully functioning in the vastness of the country. Thus, you will save yourself from additional expenses and difficulties that arise at the initial stage.
Set up a franchise business. This is the most famous and the right way, because it contains a minimum number of risks and dangers. All you have to do is follow company rules and pay royalties on time. In return, you will get invaluable experience in doing business, which can be successfully used at the end of the contract with the main company.

To understand what royalty is in a franchise, you need to know the essence of this concept itself. So, a franchise is the name of a deal concluded between the main company, which is well known from the positive side in the world, and a smaller company that is just starting its career.

According to the documents, a novice businessman receives:

The right to use software that may be needed to conduct business.
Permanent legal consultations concerning any branches of work.
Continuous training of staff, improving the quality of work with clients.
A complete supplier base, whether it be food, equipment and services. But, you can only use provided companies in your work.

How sick leave is calculated, paid and issued

According to the agreement, you get a unique right to use the company's logo, its corporate identity, copy the list of services or menus in your activities.

But for obtaining such privileges you will need to pay a certain amount. The determination of the royalty rate is made by the company that provides the service; the amount must be indicated in the documents.

When drawing up a franchise agreement, you must be prepared for two material payments that will need to be made: this is the concept of royalties and a lump-sum fee. In simple terms, a lump sum is a one-time payment. A kind of purchase of rights for a while, but royalty payments must be made every month.

The payment of royalties can be expressed as a certain amount specified in the contract, or as a percentage of the institution's profits.

In order for the franchise owner to receive a decent profit, and for the young company to have the opportunity to develop, the optimal amount is chosen that would suit both parties.
Otherwise, neither the franchise representative will receive the expected money, nor the entrepreneur will be able to develop his business to its full potential.

The best contract is one that specifies not only the amount of royalties and a lump-sum contribution, but at least the minimum deductions towards the owner of the workplace.

What is a royalty rate?

If the initial fee is set by the franchise company, then the company's royalty may vary depending on the amount of income per month.

When translated from French, with the right accent in the word royalty, the literal translation means "the king's share", but today franchise royalties are the cost of paying for the use of a unique copyright or for the use of any other intellectual property.

Learning to draw a portrait of a potential consumer

In the form of a royalty rate, a businessman pays for:

Trademark royalty.
Brand and name famous company, say, such as the franchise of Hilton hotels.
All marketing services.
Continuous training and advanced training of personnel.
Promotions and discount offers.

Information about your establishment will be posted on the main website of the company. And this is an additional way to attract customers.

What determines the amount of royalties?

Royalty can be calculated in three different ways:

A certain percentage of royalty, which is charged according to the contract and paid to the franchisor. This method of payment is used in accordance with the convention, while the document must indicate the period of time and the exact percentage of expenses.
Royalties vary by brand. This type of contract is most often used when working with grocery stores who can independently set and calculate margins, costs, and profits.
A fixed percentage of royalties, according to the agreement and convention, is a certain amount that is negotiated in advance. It can vary significantly - it all depends on the quality and completeness of the licensed services provided, the number of enterprises or industries. For example, the production of jewelry is much more expensive than the production of mineral water or sugary drinks.

Most often, such a royalty deductible is used for businesses that do not have a certain monthly income, and it is quite difficult to decide on interest and royalties.

How to get rid of royalties?

The royalty free method or the royalty exemption method is sometimes used to determine how much a license and patent for an activity costs. A detailed sample action plan can be found online.

Upon signing the contract, the franchise owner grants, for a certain amount, the right, by agreement, to use his intellectual property for his own purposes. To do this, a presentation of the product is made, and it is included in the list of franchise offers.

The amount of royalties in this case is calculated as a percentage of the revenue that an entrepreneur receives on average by providing editorial services. Or selling goods.

According to the royalty free method, for a certain period of time, the franchisee is exempted from the calculation of royalties or a minimum amount is assigned. But during the calculation of royalties, the analysis of market offers and the correct approach to calculating the contribution are still taken into account.

How is the rate calculated?

During the life of the contract in the business, the amount of royalties may change. This may happen several times throughout the term, several times a year or even every month. In this case, the rate is called a moving rate.

Grounds and procedure for deprivation of parental rights

This means that the higher the income level of a subsidiary or organization, the smaller the percentage of income will need to be spent on royalties.

The percentage of royalties directly depends on how many products were sold or how many services under the direction of this company were provided. According to statistics, the percentage ranges from 1 to 12%, but usually, according to the presentation, it is 2-6%.

It is also important to understand what it is - a foreign market. For example, the presented services for pharmacological activities in different countries have different royalty rates.

For example, in the USA it is 3-10%, in France it is 4-5%, and in Russia it can reach 15%.

Music Payments

The music field has long been considered special, even in the field of franchising. This type has a strong attachment to individuals who are their producers and copyright holders. For example, certain songs are often associated with their authors, and musical works with composers.

Despite this, it is very important to register the copyright for the work, otherwise it simply does not belong to you, although it is associated with you. Regardless of national legislation, sound recording companies use a special set of copyrights and royalties to digitally transfer and sell recordings.

It is much more difficult to arrange a franchise for musical works - not everyone agrees to this. But still it can be done. Some stars agree to give their creation to use free of charge, but nevertheless, documents are signed stating that after a certain period of time the right to use the creation will be invalidated.

Franchising nationwide and beyond

In most cases, payments are made directly to the license holder.

They are carried out using two main methods:

In the form of sequential payment in equal parts, until the full repayment of the required amount. Such material manipulations can only be carried out with the written consent of the person who owns the rights.
In the form of a simultaneous payment, which immediately reimburses the full amount. It is often used in cooperation with foreign partners or in the exploitation of industrial property.

Common interest on royalties

But there are certain interest rates that are most often applied in different areas of activity. These are the things you need to focus on when drafting a contract:

mechanical engineering industries - 4-10%;
production and sale of chemical goods - 2-5%;
household goods - 3-7%;
electrical goods - 3-9%.

But these indicators relate exclusively to our country. Abroad, indicators may differ up or down by several points.

In addition, when calculating royalties, the amount is affected by:

Method of payment of material resources.
Installment duration.
The amount of the amount to be paid.

As for cooperation with foreign companies, the amount of payments they usually vary between 10-40%. At the same time, if royalties are paid sequentially, in equal installments, then the amount is additionally taxed. If you pay the amount once in full, then you will not incur additional expenses.

As a result, I would like to say that royalties are an obligatory part of any franchise in all industries. It is through her that the development young business, improving staff skills and many other manipulations.

Therefore, do not complain about the copyright holder. In order not to get into trouble, it is enough to carefully read the contract before signing it, and negotiate the amount of payments and the procedure for changing it with a representative of the copyright holder company.

Royalty

Term royalty(from the medieval French word roialte) defines a specific type of royalty, usually monetary periodic compensation, for the use of franchises, copyrights, patents, natural resources and other types of property in the production of which the copyrights or patents are just used.

Royalty Features

Royalties are paid as a percentage of the cost of goods or services sold, a percentage of income or profits. In some cases, the above type of license fee may be set as a fixed payment. In such a situation, a royalty bears some resemblance to a rent.

The second feature of the above license fee is that royalties are not a one-time bonus. This is what distinguishes it from commissions and bonuses.

Royalty in franchising is a fairly common phenomenon. Monetary compensation is provided for the use of a logo, trademark, slogan, corporate music and other signs, according to which a particular company is defined.

In land law and economics, royalty is a rent paid for the right to develop natural resources, which is paid to the owner of the land by the entrepreneur.

Royalties in franchising

It is known that franchising is a small form of business activity in which the franchisor (one party) grants the right to the franchisee (the second party) for a specific fee, that is, royalties, to conduct business under its trademark and brand.

There are three main types of the above monetary compensation:

Percentage of turnover - provides for the franchisee to pay the franchisor a percentage of the volume of sales of goods. Payment is made for a certain period and based on the results of the company's work. A percentage of turnover is the most common form of royalty in franchising. Its final amount is the previously agreed percentage of the company's gross turnover.
Specialists characterize a fixed royalty as a regular payment, which is strictly determined by a contractual agreement and differs by a fixed percentage of income. This amount is tied to the number of clients served, the area of the building, the number of enterprises, and the franchisor's services. It is where it is difficult to determine specifically the amount of the franchisor's income that the above type of royalty is typical. In addition, experts do not recommend setting a fixed minimum limit for this payment. After all, the franchisee must have an incentive to work. In this case, he will make the most of the opportunities that the franchise system has provided him.
Percentage from the margin - is used by the franchisor only if he clearly regulates the pricing policy of retail and wholesale sales. This type of monetary compensation is interesting for the franchisee when a different markup level is used in his store.

What exactly does a franchisee pay royalties for?

In the narrow sense, the above monetary compensation is payment for the brand, name and trademark.

In a broad sense, royalty is a remuneration for the services of the franchisor, which the latter provides to the franchisee in the operation of his company.

Therefore, the franchisee pays royalties for supporting and servicing the business, that is, for the fact that the franchisor entered certain markets, established itself well there, and then provided him with the opportunity to enjoy the popularity of his brand or trademark and earn good money at the same time.

Franchise royalties

Typically, the payment of the above monetary compensation ranges from 1 to 5% of the gross income of a particular enterprise and depends, first of all, on factors such as:

the amount of potential profit (the franchisor assesses what benefit the franchisee will receive, for example, from opening a store, how high the trade margin is, the profitability of this business);
prestige of the brand (experts note that really high royalty rates are observed in the field of hotel business, because hotel chains that are known all over the world value their reputation extremely and therefore try by all available means to protect themselves from cooperation with casual entrepreneurs in this industry) ;
spending on the maintenance of its own staff (that is, the marketing department, accounting department, centralized supply service).

How often do you pay royalties in franchising?

Payment of the above monetary compensation can be made according to the following periods:

previously;
weekly or twice a month;
monthly (in most cases no later than the 5th day of each month).

Experts call the monthly frequency of royalty payments the riskiest form of revenue collection, since the money can easily "hang" in the franchise partner.

Royalty on natural resources in some countries of the world

The above compensation is a payment for the right to develop and exploit natural resources. Withdrawn rent can be distributed as follows:

accumulate in a particular region, state, province, and the country receives only income tax (for example, in the USA);
concentrated in the hands of the state (in other countries).

In Russia, there is another model for the withdrawal of monetary compensation for the exploitation of natural resources. It occurs with the help of mechanisms of export duties, various kinds of excises.

In the United States, the process of hydrocarbon production and subsoil development is strictly controlled by the state. Royalty on natural resources in this country is fixed.

In Canada, the mechanism for providing natural resources for use is based on the licensing-lease system.

In Norway, government regulation of royalties is very heavily used. Natural resources are extracted only on the basis of a license. Then the state oil companies must pay income tax, which is about 50%. In a given country's taxation system, royalties are determined on a sliding scale.

Royalties in the UK can be charged by a country not only in Money ah, but also in kind. Since 2002, in this state, companies have been paying a tax on income from gas and oil production, which is 10%. Then there is another tax - 30% of the corporation's profits.

Royalty rates for copyrighted items

The main modern forms of the above monetary compensation, which are applied to objects of copyright:

a system of linear current payments (the author receives his remuneration depending on how many copies the licensee sells);
degressive royalty (the percentage of monetary compensation decreases with an increase in the number of sold copies of the work) - this system very often used in Western countries;
progressive royalty provides for an increase in the remuneration rate with an increase in sales of goods;
profit-based royalties - the basis for calculating the above remuneration is not gross income, but profit from the sale of copies of the work (very often used by Russian authors);
a system of minimum time for monetary compensation is applied if the author intends to force the sale of copies of his work (in this case, the licensee provides the author with a lower percentage of royalties for a certain period).

Methods for calculating royalties

The above monetary compensation is used in 90% of cases for settlements with the licensee after the conclusion of the contractual agreement. The value of royalties in the literature is defined as "fair" or "reasonable".

Experts note that this monetary compensation should not only justify the costs of the licensee, but also bring income to him and the licensor.

Royalty in is usually represented by the letter R (abroad R is used). This monetary compensation is expressed as a percentage of the base - the effect or result of the buyer or licensee. As a base can be used:

net income;
gross income;
additional profit;
cost price;
the price of a batch or unit of goods;
the cost of the main processed raw materials;
unit capacity of production or a separate workshop.

In practice, experts use the following royalty rates:

Know-how royalties

Depending on a number of factors, the amount of royalty when concluding a license for know-how is usually reduced by 20-30%. This happens in the following cases:

if the intellectual property is transferred under a non-exclusive, that is, a simple license (decrease by 20-40%);
know-how is transferred to the OIP, is known on the market, but provides some interest to the licensee (decreases by 40-60%);
for the development of intellectual property it is necessary to attract significant capital investments, for example, to carry out additional research (the amount of royalties is reduced by 20-40%);
in case of transfer of an incomplete set of technical documentation package (for example, only design documentation), then the above value is reduced by 70-80%.

Royalty in the system of legal relations

Until 2002, Russian legislation did not regulate the procedure for acquiring licenses and know-how by companies. Experts note that this significantly reduced the effectiveness of state control over the export of funds from the country, and reduced budget revenues.

Today, the taxation of royalties based on double tax treaties concluded by Russia is generally more preferential in comparison with the tax regulation of repatriated dividends. This serves as an additional incentive to apply royalties for the export of income from the territory of Russia.

The legal relationship of the parties regarding the above monetary compensation, which relates to franchising activities, is regulated in the Russian Federation by Chapter 54 of the Civil Code.

How to avoid risks when paying royalties?

The above monetary compensation is for manufacturing enterprises, IT companies, the media is quite a good tool for tax planning.

This is due to the fact that in these industries the use of patents, trademarks has a clear business case. Another thing is with the services and trade sectors.

Experts note that tax risks are observed if the amount of license payments significantly exceeds all reasonable limits, or, for example, this tool used simply "in the forehead."

To prevent royalties from becoming a dangerous tax scheme, experts recommend taking the following actions:

monetary compensation under the license contractual agreement must be economically justified;
connection with the company's income must be monitored without fail;
the market level corresponds to the amount of license fees, which usually ranges from 5 to 7%;
the license contractual agreement must necessarily indicate the volume of production it is concluded for and how long it is valid for;
the presence of a pre-contractual receipt with the licensee, minutes of negotiations and meetings is, according to experts, a good and reliable proof of the reality of relations between both parties;
in no event shall the licensor and the licensee be interdependent;
the contractual agreement must be registered with Rospatent before the start of payments under it;
any changes to the contract are also registered in the prescribed manner.

Royalty: what is it in simple words

In fact, royalties (royalties) are regular payments paid as a reward to the owner of intellectual property rights (patents, copyrights, business model, logos, brand, recipe, etc.) or natural resources for their use for commercial purposes.

The term itself comes from the English word royalty, which means royal or state. Initially, it was applied exclusively to payments that entrepreneurs paid to the state for the development of subsoil. Today, the concept of royalty is most often used to refer to monthly payments under a franchise agreement.

Unlike a lump-sum fee (franchise price), such payments are accrued constantly throughout the entire term of the contract. Most often, payments are made once a month in the first decade.

The concept of royalties has many similarities with lease and rent payments, but unlike the latter, regular franchise payments are closely related to the level of income from the rights received for temporary use.

What do franchisors pay royalties for?

From the standpoint of accounting and the tax code, every license fee that is paid specifically for the use of rights, and not for the acquisition of the latter, falls under the category of royalties.

Thus, we can say that if the lump-sum fee is the main cost of the franchise for the opportunity to get acquainted with the business model and get the basic tools for opening a new representative office, then royalties are actually a payment information support your business by the specialists of the franchisor company, deductions for brand promotion and the supply of promotional materials.

In addition, do not forget about the development of the brand and the development of new products, which are subsequently also integrated into the business of each franchisee.

This moment is especially important for companies engaged in research and innovative development.

In some cases, the main copyright holder provides assistance in managing and coordinating the work of the franchisee, which requires certain costs included in the payments.

Types of royalties and features of their calculation

The amount of royalties directly depends on the amount of profit that the party acquiring the right receives. However, this indicator itself can be calculated in several ways. Depending on which of them was chosen, payments are conditionally divided into the following types:

Percentage of sales volume (from turnover of funds). In this case, royalties are paid based on the actual results of the work of the franchisee, which encourages the franchisor to strictly control the work of the representative office.
Interest on profit (margin). They are set on the value of the markup on the goods, in the case when the company operates in wholesale and retail areas.
Fixed rate. Such payments are conditionally fixed, since in fact their size depends on the size of the organization (sales space, number of clients, number of representative offices). Most often, the franchisor company provides ready-made cases for businesses of various formats, which greatly simplifies the cooperation scheme.
Combined. A combination of several types of royalties for certain categories of goods or services.

In addition, the size of the rate or percentage depends on the popularity of the brand and the region of operation. For example, lower rates may be provided for small towns, since it is more difficult to achieve high profits in them.

Also on domestic market quite often in the presentation of the franchise, the amount of royalties is indicated as a fixed amount in the equivalent of the national currency. In reality, such remuneration is often subject to subsequent indexation, getting linked to the inflation rate, which is stipulated in the official contract.

Typically, the average franchise royalty payout is between 5% and 10%. In some cases, franchising is implemented without the obligation of a regular payment.

So, for example, a franchisor company can simultaneously act as a manufacturer (supplier) of products sold, and in this case, the profit is formed by increasing its own turnover.

Sometimes royalties are conditionally absent, since they are initially included in the cost of deliveries of products or raw materials, and in this case they are usually called hidden.

Legal and tax nuances

Despite the fact that the definition of franchising is absent in the legislation of most CIS countries, the term royalty is actively used in domestic legal practice, and the payments themselves are subject to taxation. Today, they fall under the following types of taxes:

On profit (personal income tax for individuals) 20%. Paid by the party that pays the royalty, with subsequent collection from the franchisor. However, if the franchise agreement is concluded with foreign company registered in a country that has a special agreement, both parties may be exempt from this tax.
VAT. Paid by the franchisor. If at the same time the agreement is concluded with a foreign franchisor that is not registered in the country where the activities under the franchise agreement are carried out, the franchisee company pays VAT with subsequent collection from the franchisor. VAT exemption for royalties is possible only when the subject of the transfer of rights are: inventions, know-how, industrial layouts and samples, databases, software.

You should also be aware that, in fact, the franchisee company is obliged to pay royalties only if the license agreement (commercial concession) is registered with the relevant authorities state registration(Rospatent for the Russian Federation).

Entrepreneurs working on simplified taxation systems, for whom it is very important to comply with the income (revenue) limit, should be extremely careful in the issue of paying taxes on royalties. Also, the main difficulty can be the proof tax services the business purpose of the regular payments made.

Pros and cons of paying royalties

In practice, royalties have both advantages and disadvantages for both parties to the contract.

The positive effect of the presence of regular payments for the franchisor is, of course, the formation of a virtually passive income on an ongoing basis.

Also, if the terms of the franchise established interest payments on profit or turnover, the main copyright holder has the opportunity to control the work of the representative office in more detail.

For franchisees, royalties are fixed costs, which at first glance is a negative quality. On the other hand, the interest of the franchisor in increasing their own profits by improving the work of the franchisee becomes a guarantee of a kind of mentoring assistance and more detailed advice on organizational issues.

The main risks of royalty payments for franchisees are their unreasonableness. For example, the copyright holder company may not fulfill its obligations to support the representative office, but only collect additional payments.

On the other hand, the cost of using a brand may not correspond to its real value, which is quite difficult for a novice entrepreneur to determine when signing a contract.

In this case, in fact, an inappropriate outflow of funds occurs.

Understanding the term royalty, what it is in simple words and how it is implemented in practice is quite an important point for everyone who is considering the possibility of building a franchise business. It is worth remembering that after signing the agreement, it will not be possible to reduce the rate or get rid of regular payments to the copyright holder without terminating the agreement.

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Entrepreneurs who want to work on a franchise inevitably come across the concepts of lump sum and royalties - we explain what it is in simple terms in this article. You will learn what these payments are for, what they are made up of, and what options exist on the market.

Franchising is a popular way to start a small business by purchasing the right to use a famous brand. When buying a franchise, businessmen inevitably face two types of mandatory payments: one-time and regular.

Interestingly, both concepts are not enshrined in Russian legislation, which does not prevent them from working in practice.

Lump sum and royalties are the types of payments that the franchisee makes(buyer of brand rights), for:

the opportunity to work under a well-known name;
the opportunity to adopt entrepreneurial experience;
assistance in the purchase of equipment, selection and training of employees;
promotion services from the main company;
other services and any assistance in doing business.

What is a lump sum

At the very beginning of cooperation, the buyer pays the franchisor a certain amount, one-time initial payment for the right to use the brand and count on the joint development of the trading network. Such a contribution is called a "lump sum", its name comes from the French phrase "thick piece".

The size of the lump-sum contribution varies from 15 thousand to several million rubles. The average price is 300 thousand rubles. Usually the size of the one-time payment is clearly fixed by a certain amount (or within certain limits), although some companies set the amount of the first installment personally for each entrepreneur. The cost, as a rule, depends on the direction in the business, the popularity of the copyright holder, manufacturability and his contribution to the opening of a new institution. Usually this fee is identified with the cost of the franchise.

Franchising is a popular way to start a small business

How is the lump sum amount calculated?

The amount of the contribution is not determined by chance. It is calculated on the basis of the costs incurred by the franchisor for the training of the franchisee and the opening of a new network establishment. The higher the cost, the higher the cost of the franchise. Costs typically include:

training for entrepreneurs and employees;
preparation and printing of guidelines, strategies, rules and other documents;
branded clothing for employees, packaging with logos, etc.

You should not equate a lump-sum payment with all investments in a business. This one-time payment to the copyright holder does not include the cost of equipment, rental of premises, repairs, purchases of the first batches of goods. This is a price to pay for the opportunity to open an institution with an already proven brand, to learn professional skills and learn some parts of trade secrets.

By the way, some firms sell franchises without a lump-sum fee at all. As a rule, these are companies that are interested in opening the largest possible number of outlets such as clothing and footwear stores.

Monthly franchise fee

The situation with monthly payments is somewhat more complicated. In franchising, they received the name "royalty", which also comes from the French language. Literally, it means "royal", which translates as "share of the main" from profits or property.

What is a "royalty" in a franchise? This is a monthly payment to the franchisor for the right to use the brand and make a profit from it, as well as other services. There are several approaches to calculating this type of payment.

Percentage of turnover. Partners indicate in the contract the percentage that the franchisee will pay monthly from the total sales volume. As a rule, the amount of payment is assigned within the limits of 2-5%. This is the most common type of royalty determination.
Fixed amount. It is also a fairly popular type of royalty, when, regardless of profit, the franchisee pays the same amount every month.
Percentage of margin(i.e. the difference between price and cost). It is rare, as it is not profitable for most franchisors and is more time-consuming to calculate.

Royalty rates for a trademark are determined by the franchisor at the stage of franchise development through calculations, analytics and forecasting the most profitable option. In rare cases, companies select personal conditions for their partners and use several methods of calculating royalties.

Royalty payments sometimes include the cost of consumables, technical support, advice, and retraining. The approach to calculating monthly fees also differs by industry. Quite a few companies operate royalty-free- individual beauty salons, optics stores, marketing agencies and other companies.

When buying a franchise, businessmen inevitably face two types of mandatory payments.

What do franchisors earn without royalties and lump-sum fees

Often on the franchise search exchanges you can see offers without an entrance fee and monthly payments(or with a symbolic amount of 1 ruble). What is the benefit of these companies? Obviously, no one will work at a loss, that is, such firms still make money on something.

As a rule, these are companies (manufacturers or intermediaries of manufacturers) that oblige the franchisee to purchase consignments of goods from them according to an agreed schedule. They are interested in the fastest possible sale of goods through the franchise network, so they do not burden partners with additional payments. Although, strictly speaking, most often the royalty is simply included in the purchase price.

Conclusion

Franchising in Russia is actively developing. An entrepreneur who wants to start a business in this way must have a good command of the specific conceptual apparatus and determine which approach to calculating royalties and what size of the lump-sum contribution will be more profitable in his situation.

Royalties are payments that the franchisee pays regularly (usually monthly) to the company for using its brand, experience, business reputation and technology.

So, the franchisee (franchise buyer) makes periodic payments to his franchisor (franchise seller) for the use of his intellectual property (once again to the question of what royalties are in a franchise).

Companies decide for themselves how to determine the amount of royalties. As a rule, the franchisor sets a certain percentage of turnover or margin, or his income is directly generated by supplying the franchisee with his products. Also, the franchise seller can set a progressive or regressive scale of deductions.

*Margin is the difference between cost and price.

The amount of fees charged to the franchisee is set based on the cost of the services provided by the company and those services that are purchased for the entire franchise network. If the company chooses the “percentage of turnover” format (for example, 10% monthly), then the partner must pay royalties in the amount of 10% of sales for the past month.

"Our company is interested in the development of partners, because the more they earn, the more we get. And it is very important for us to give all effective tools to our franchisees for successful development business. In fact, we play the role of investors. Initially, the company gives more than it receives from the franchisee partner. We start earning on a franchise only when its buyer reaches a turnover of 2 million rubles, and we receive 80 thousand rubles from him in the form of royalties.

The choice of percentage not from turnover, but from the margin is usually typical for the franchisor, who clearly regulates the pricing policy in the network and, in fact, he sets a certain percentage from the markup on the goods. As a rule, these are the companies that can influence wholesale and retail prices. And if the level of markup for a particular product is different, then this form of royalty calculation is the most optimal.

Some companies make a profit from the sale of a franchise only due to the fact that the franchisee purchases products from them. More orders, more profit. And no payments.

What is a lump sum and royalties? What's the Difference? Royalty as well as a lump-sum fee is a payment for granting the right to use the intellectual property of the franchisor. The lump-sum fee is a one-time and fixed amount that the franchisee pays when concluding a concession agreement. For more information on what is a lump-sum contribution, read the article. . In turn, royalty payments are regular. It can represent a fixed amount, but is more often in the form of an interest rate.

So, you can choose to franchise without royalty or with deductions in the form of a percentage of turnover or margin. However, no matter what type of payment the franchisor sets up, the main thing is to know what you are paying for and whether the assistance provided is really worth it.