MCA Television Ltd. v. The Queen, 94 DTC 6375 (FCTD)

In rejecting evidence that the description of the other party ("B.V.") to an agreement with the taxpayer as a collection agent for the taxpayer was "inadvertent", MacKay J. stated (p. 6381):

"While it is now clear to the plaintiff that the description of the relationship of B.V. to the plaintiff, as a collection agent, ought not to have included receipts from Canadian exhibitors under agreements with B.V., the words included in agreements made for sophisticated business operations by knowledgeable persons acting freely in their own interests must be deemed to express the intentions of the parties."

The taxpayer's Netherlands affiliate ("B.V.") was the Canadian distributor of theatrical and television products produced by an American affiliate of the taxpayer. MacKay J. found in light of the terms of an agreement between the taxpayer and B.V. and the character of B.V.'s operations in Canada that B.V. operated on its own account rather than as agent for the taxpayer, with the exception of its role as collection agent for the taxpayer's share of "gross television receipts" received by B.V. as defined in the agreement. In going on to find that payments made by Canadian exhibitors to B.V. did not give rise to a liability of the taxpayer for Part XIII tax under s. 212(5), MacKay J. stated (p. 6385):

"The fact that B.V. had contractual obligations to the plaintiff under its licensing agreement, including the obligation to act as collection agent for the plaintiff in relation to the latter's share of television gross receipts as defined, did not, in my opinion, change the nature of the relationship between B.V. and Canadian exhibitors or create any legal relationship between those exhibitors and the plaintiff. The payments by Canadian exhibitors were to B.V., not to the plaintiff, and the description of B.V. as the plaintiff's collection agent does not change that."

MacKay J. found that no assistance as to the meaning of the phrase "motion picture films" should be derived from subsequent amendments to the Canada-U.S. Income Tax Convention in light of s. 45(2) of the Interpretation Act.

MacKay J. found that the phrase "motion picture films" in Article XIIIC of the 1942 Canada-U.S. Income Tax Convention did not include made-for-television movies or other television productions in light of evidence that this was how the phrase "motion-picture-film" was interpreted in the industry.

MacKay J. found that the reference in Article XIIIC of the 1942 Canada-U.S. Convention to "motion picture films" referred only to products which originally were created for theatrical exhibition rather than for television viewing, in light of evidence that those in the industry did not consider television movies and other made-for-television productions to be "motion picture films" and in light of its determination that the phrase "motion picture films" should be given the meaning intended by the parties to the Convention in 1950 when that Article was incorporated by the Protocol amending the 1942 Convention.