Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
March 6, 1995
Toronto District Office Rulings Directorate
Audit Division David R. Senécal
Section 443-6-6 (613)957-9796
4-438 University Avenue
Attention:Maria Gaglia
Business Enquiries Group
942876
XXXXXXXXXX
This is in reply to your memorandum of November 1, 1994, wherein you request our opinion regarding the application of subsection 212(5) of the Income Tax Act (the "Act") and
XXXXXXXXXX in the following situation:
XXXXXXXXXX
It is our view that subsection 212(5) of the Act would apply to the type of royalty payments described above on the basis that the provision is more specific than subparagraphs 212(1)(d)(i) and (vi) of the Act which would otherwise apply. Furthermore, it is our view that the term "in connection with television" as used in subsection 212(5) is very broad and would apply to videotapes destined for private home use.
XXXXXXXXXX
Similar payments paid or credited to residents of the U.K. would, in our view, also be exempt from taxation in Canada. This is based on the wording of paragraph 3 of Article 12 of the Canada-U.K. Income Tax Convention; the said payments representing copyright royalties in respect of the reproduction of any literary, dramatic, musical or artistic work other than in respect of motion pictures and works on film, video tape or other means of reproduction for use in connection with television broadcasting.
The same holds true where the payments are paid or credited to a U.S. resident. The technical explanation of the Canada-U.S. Income Tax Convention which was issued by the United States Treasury Department reflects the policies agreed to behind the particular Convention provisions. The explanatory notes regarding Article XII state that copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical, or artistic work, including royalties from such works on videotape or other means of reproduction for private (home) use, if beneficially owned by a resident of the other Contracting State, may not be taxed by the Contracting State of source.
In closing, we note that, contrary to the assertion made by the taxpayer's representative, the examples of the contracts supplied to us stipulate, in some cases, that the taxpayer is assigned the television and cable television rights. In our view, Canada would have the right to tax the portion of the payments allocable to such rights as royalties under the above-mentioned treaties. Consequently, to the extent that payments relate to the right to use the television or cable rights in Canada, they would be taxable pursuant to subsection 212(5) Act where the video has been or will be used or reproduced in Canada or subparagraph 212(1)(d)(i) of the Act may be applied where the right has been acquired but is not exercised. You may, therefore, wish to submit the contracts to the department's valuators in order to determine the value of such rights.
Other contracts stipulate that, in addition to obtaining the reproduction rights, the taxpayer will receive 50% of any revenue received by the lessor for its Canadian television or cable rights. We are of the view that the portion of any payment made by the taxpayer for the right to receive a percentage of the lessor's revenue from television or cable rights would not be subject to Part XIII tax. However, any payments made to the lessor by a television or cable broadcaster resident in Canada for the right to use those same televison or cable rights in Canada would be taxable pursuant to subsection 212(5) or subparagraph 212(1)(d)(i) of the Act.
We trust that our comments will be of assistance to you.
for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1995
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1995
Email this Content