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: Whether a royalty fee paid by a Canadian resident to a non-resident in respect of copyright music that has been incorporated into a video and used in connection with television in Canada is subject to Part XIII tax?
Position: No.
Reasons: The payment is for the use of the copyrighted music and not on account or in lieu of payment of, or in satisfaction of, payment for a right in or to the use of a motion picture film, or a film, video tape or other means of reproduction for use in connection with television.
2011-042422
Claudio DiRienzo
Canada Revenue Agency
Policy and Technical Advisor
Medium Business Audit Division
112 Kent St., Room 1998
Place de Ville, Tower B
Ottawa, Ontario
K1A 0L5 Angelina Argento
December 14, 2011
Re: Subsection 212(5) of the Income Tax Act (the "Act")
This is in reply to your email of October 14, 2011, in which you asked for our views as to whether subsection 212(5) of the Act applies in respect of payments made by a Canadian resident to a non-resident for the right to reproduce music which will be incorporated into a video and used in connection with television in Canada.
Facts
Our understanding of the facts is as follows:
1. A Canadian XXXXXXXXXX ("Canco") entered into a licensing agreement with the US owner ("US") of certain rights in compositions and sound recordings.
2. Canco received the non-excusive right and license to use/integrate such copyrighted music in its video productions subject to certain limitations. In particular, Canco has the right to "fix, record, dub and edit the music in synchronized or timed relation to visual and audio elements."
3. The music will be used in promos (i.e., the music will be integrated into a production promoting program viewership) for national/nationwide telecasts airing in Canada only. It is for broadcast on XXXXXXXXXX .
4. The license payments are fixed amounts with caps on usage. For example, $XXXXXXXXXX payable each year for three years. The cap on the usage is XXXXXXXXXX total promos per year which is broken down according to the several XXXXXXXXXX involved.
Issue
The issue is whether the royalty fee paid by Canco to US is subject to Part XIII tax.
Views of the CRA Field Officer which raised the issue
The field office raised the issue of whether or not this payment would be taxable in accordance with subsection 212(5) of the Act as the copyright music has been incorporated into a video and used in connection with television in Canada.
Your Position
You are of the opinion that the fee paid by Canco to US is a payment in respect of copyright in respect of the right to reproduce all or parts of a musical work in the promotional material which will be used in Canada. Accordingly, you believe that the payment is exempt from the provisions of paragraph 212(1)(d) of the Act by virtue of subparagraph 212(1)(d)(vi). You are also of the view that the payments made by Canco to US are not for the right to use of property described in paragraphs 212(5)(a) and (b).
We agree that the provisions of paragraph 212(1)(d) of the Act do not apply to the payments by virtue of subparagraph 212(1)(d)(vi) thereof. Therefore, unless the payments fall into subsection 212(5) of the Act, the payment will be exempt from withholding under Part XIII of the Act.
Subsection 212(5) of the Act reads as follows:
"Every non-resident person shall pay an income tax of 25% on every amount that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit, to the non-resident person as, on account or in lieu of payment of, or in satisfaction of, payment for a right in or to the use of
(a) a motion picture film, or
(b) a film, video tape or other means of reproduction for use in connection with television (other than solely in connection with and as part of a news program produced in Canada),
that has been or is to be used or reproduced in Canada."
In the situation described above, Canco is not paying an amount to US for "a right in or to the use of a motion picture film or video product"; instead, Canco is paying US for the right to use/reproduce copyrighted music which will be incorporated into film or video produced in Canada. Therefore, in our view, subsection 212(5) does not apply to the payments made by Canco to US, and such payments are exempt from tax under Part XIII of the Act pursuant to subparagraph 212(1)(d)(vi) of the Act.
We trust that these comments will be of assistance.
Yours truly,
Olli Laurikainen
Section Manager
For Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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