Principal Issues: (1) Whether royalties paid to a non-resident person for the right to use copyrights and trademarks are subject to withholding tax under paragraph 212(1)(d). (2) Whether the portion of a royalty payment, made in respect of a mixed contract, that is attributable to a copyright or a trademark can be exempted from withholding tax under any of subparagraphs 212(1)(d)(vi) to (xii). (3) Whether a person is considered to have carried on a business in a country other than Canada for the purpose of subparagraph 212(1)(d)(x). (4) What determines the application of the exception in subsection 212(1)(d)(vi).
Position: (1) Yes, unless one of the exceptions applies. (2) Yes, if the conditions of application of subparagraph 212(1)(d)(vi) and (x) are otherwise satisfied in respect of the portions of the payments attributable to the copyright or trademark, respectively. (3) It depends on all of the facts and circumstances in a given situation. (4) General comments provided.
Reasons: (1) Unless one of the exceptions described in subparagraphs 212(1)(d)(vi) through (xii) applies, a payment to a non-resident person which is in the nature of a “rent, royalty or similar payment” is generally subject to withholding tax, under the preamble of paragraph 212(1)(d). (2) A payment under a mixed contract should generally be apportioned between the various items provided under the contract for the purpose of paragraph 212(1)(d). (3) General comments provided. See below. (4) Where a contract provides for a payment subject to tax under paragraph 212(1)(d) and for a payment that is not otherwise subject to tax under the Act, the CRA can change an apportionment that is not reflective of the actual types of royalty payments which are described in paragraph 212(1)(d).
