1 April 1985 Income Tax Severed Letter A-1081 - [850401]

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.

XXXX

E. Wayne Hood (613) 7295

April 1, 1985

XXXX

We are replying to your letter of February 1, 1985, concerning the greater relief provision under Article XXX of the Canada - U.S. Income Tax Convention (1980).

You have asked for our comments on the following interpretation of paragraph 5 of Article XXX of the Canada - U.S. Income Tax Convention (1980) (the Convention).

The following is a summary of the application of the greater relief provision as it applies to television broadcasting royalties paid in respect of both videotape and motion picture film.

1) Under the provisions of the Canada-U.S. 1942 Tax Convention, videotape royalties are exempt from withholding tax and motion picture film royalties are subject to withholding tax at a rate of 15%.

2) Under the provisions of the Canada-U.S. 1980 Tax Convention television broadcasting royalties paid in respect of both videotape and motion picture film are subject to withholding tax at a rate of 10%.

3) Under Article XXX of the Canada-U.S. 1980 Tax Convention, paragraph 5 stipulates that "Where any greater relief from tax would have been afforded by any provision of the 1942 Convention than under this Convention, any such provision shall continue to have effect for the first taxable year with respect to which provisions of this Convention have effect under paragraph 2(b)".

4) In interpreting this greater relief provision, television broadcasting royalties paid in respect of both videotape and motion picture film can be split so that the 1942 Tax Convention can be applied to the videotape royalty portion and the 1980 Tax Convention can be applied to the motion picture film portion of the royalty payment.

This application is based on the view that the 1980 Tax Convention rules would first apply the 10% rate to all the videotape and film royalties. Under the greater relief provision, however, the 1942 treaty could be applied to the videotape royalties.

In our view your interpretation reflects the intended application of the Convention provisions. We point out that Article XII of the Convention has effect from October 1, 1984. Accordingly, as stated in our Release dated September 11, 1984 Article XXX relief is available for the period commencing October 1, 1984 and including the first taxation year beginning on or after January 1, 1985.

We hope our comments will be useful to you.

Yours truly,

for Director Non-Corporate Rulings Division