Entertainment Software Association v. SOCAN - Supreme Court decision casts doubt on withholding tax exemption for artistic production royalties

The copyright holders of musical works represented by the Society of Composers, Authors and Music Publishers of Canada ("SOCAN"), who generally would have already licensed the copyright in their musical works to games publishers, were found to not have any right to further royalties when the games were downloaded by online purchasers.  At issue was whether these downloads represented a "communicat[ion of] a work to the public by telecommunication," which was protected under s. 3(1)(f) of the Copyright Act.  The Supreme Court of Canada found that the core of Canadian copyright is the pair of rights set out in the introductory paragraph of s. 3(1), which are the exclusive right to produce or reproduce, and the exclusive right to perform, a work.  Historically, s. 3(1)(f) is a specific example of the latter right only.  As the downloading of the games by their online purchasers was protected by the production or reproduction branch of copyright protection, rather than the performance branch (including the s. 3(1)(f) telecommunication right), the SOCAN members were not entitled to collect a second set of royalties.

This distinction drawn between reproduction and performance rights suggests that copyright royalties paid to a non-resident for the right to mount a theatrical or musical production may not be exempted from Part XIII tax by s. 212(1)(d)(vi) (which applies only to royalties for "production or reproduction" of a work; see 13 June 2003 T.I. 2003-0018975 and 29 May 1998 Memorandum 973007).  Additional issues arise under similarly-worded exemptions in various Income Tax Conventions to which Canada is a party (but which should also give effect to the intent of the other Treaty partner), given that (as noted in the dissenting reasons of Rothstein J.) the copyright law of foreign jurisdictions such as the U.S. may be structured quite differently than the Canadian Copyright Act.

Scott Armstrong.  Summary of Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34 under s. 212(1)(d)(vi) and Statutory Interpretation - Legislative History.