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5.6. Qualification of Specific Income Categories for Tax Purposes

Dividend

The term “dividend” includes:

  • any sum distributed in cash/kind among all or any of the shareholders of the company, including amounts capitalized and distributed by way of a bonus issue;
  • any sum distributed in excess of the paid-up amount at the time of winding up; and
  • any property of the company sold or otherwise disposed of to a shareholder without consideration or for a consideration which is less than its market price or its true value.

However, dividend does not include:

  • any amount distributed subsequently or at the time of winding up, to the extent of the reduction in the value of the paid-up capital upon writing off of the losses incurred by the company;
  • any profit or gain distributed to the shareholders, derived from the realization of capital assets of the company, in excess of the cost of the asset to the company; and
  • any other capital gain in excess of the capital losses incurred, subject to certain conditions.

Interest Income

The term “interest” includes payments assimilated to interest and is deemed to include discounts on bills of exchange, promissory notes, and other negotiable instruments. It also includes income derived from debentures or other securities issued by the Government of Cook Islands, or by a Cook Islands company, or by a local or public authority of the Cook Islands.

Royalties

With respect to royalties, a Collector's Ruling (2014/01) defines royalties for Cook Islands withholding tax purposes to include:

  • payments for the right to use copyrights, patents, trademarks, designs or models, plans, secret formulas or processes;
  • payments to develop copyrights in software;
  • payments for the right to exploit natural resources;
  • payments for the right to use films or tapes for motion picture screening or television or radio broadcasting; and
  • payments for the imparting of scientific, technical, industrial and commercial know-how, including payments towards:
    • unrevealed technical data, samples, patterns or details of processing/production methods required for industrial reproduction of a product or a process;
    • unrevealed information on market trends;
    • unpublished information on future technological advances;
    • access to unpublished information contained in a database; or
    • the supply of any assistance/services that are ancillary/subsidiary to enabling the application of the know-how knowledge/information.

The Ruling notably clarifies that payments for the use of industrial, commercial or scientific equipment are not classified as royalties. Likewise, payments for the purchase of “over the counter” computer software are not classified as royalties unless the purchaser is paying for the right to use copyright in the software (as opposed to using a copy of the program).