CRA accepts "royalty-free" characterization of trademark licence

Canco proposed an exclusive licence agreement with a qualifying US-resident (Pubco) to manufacture and distribute products of Pubco in Canada.  CRA accepted that Canco's payments to Pubco would be exempted from withholding tax by the Canada-US Income Tax Convention by virtue of being patent/know-how licence payments, other than payments for know-how provided under a "franchise" (a broad term - see Investors Group.)

CRA did not challenge Canco's characterization of its trademark licence from Pubco as being "royalty-free," so that the practical effect of the ruling was that the trademark could be licensed free of withholding tax.

Scott Armstrong.  Summary of Ruling 2011-0416821R3 under Treaties - Article 12.