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.
Principal Issues: Under the Patent Act, if a defendant ("D") infringes a plaintiff's ("P") patent, D is liable for damages sustained by P or, if P so elects, the court may in its discretion award instead an accounting of profits. Both remedies are compensatory. The issue is whether, where the payment of damages would be deductible to D, the payment ordered under an accounting of profits would also be deductible.
Position: Given two otherwise identical fact situations, the tax treatment would be the same under the two altenatives.
Reasons: There is nothing specific in the ITA that distinguishes a damages award from an accounting of profits. If in two otherwise identical fact situations, a plaintiff opted for (or was accorded by the court) damages from its defendant, and the other plaintiff received an accounting of profits from its defendant, the tax treatment for the two defendants should be the same. What that treatment would be would depend on those identical facts.
-----Original Message-----
From: phil.jolie@ccra-adrc.gc.ca
Sent: August 29, 2005
To: XXXXXXXXXX
Subject: Patent Infringement Payment
There is nothing specific in the ITA that distinguishes a damages award from an accounting of profits. If in two otherwise identical fact situations, one plaintiff opted for (or was accorded by the court) damages from its defendant, and the other plaintiff received an accounting of profits from its defendant, the tax treatment for the two defendants should be the same. What that treatment would be would depend on those identical facts.
I trust this is satisfactory.
Phil Jolie
Director/Directeur
Business and Partnerships Division/Division des entreprises et des sociétés
de personnes
Income Tax Rulings Directorate/Direction des décisions en impôt
613 957-2098
phil.jolie@ccra-adrc.gc.ca
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