Conversion of royalties into capital gains. 91. A non-resident who owns the copyrights in a literary work wishes to grant to a resident of State S the right to translate and reproduce that work in that State in consideration for royalty payments based on the sales of the translated work. Instead of granting a license to the resident, the non-resident enters into a “sale” agreement whereby all rights related to the translated ver- sion of that work in State S are disposed of by the non-resident and acquired by the resident. The consideration for that “sale” is a percentage of the total sales of the translated work. The contract further provides that the non-resi- dent will have the option to reacquire these rights after a period of five years.
