17 April 1986 Income Tax Severed Letter 5-0190

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Dear Sirs:

Re: Non-Resident Withholding Tax

This is in reply to your letter dated December 4, 1985 and further to your telephone conversation with Mr. McColm on December 12, 1984 concerning the withholding tax requirements on payments to U.S. residents by residents of Canada under the Canada-U.S. Income Tax Convention, 1980 (the "new treaty").

You have asked that we comment on your conclusion with respect to a number of general categories of payments for television programming set out below. In addition, you have requested our views with respect of withholding in two other areas.

• 1) Videotaped Television Programs Physically Shipped to Canada

Subsection 212(5) of the Income Tax Act (the "Act") requires that a non-resident pay an income tax of 25% on every amount that a person resident in Canada pays for the use of such videotape that is for use in connection with television in Canada. This amount is reduced to 10% under Article XII of the new treaty where the videotape is subject to copyright protection.

• 2) Payments for Pretaped Television Progamming (e.g. weekly series, specials, mini-series) where the Program is Transmitted to Canada by means other than physical shipment of th videotape; i.e. by satellite.

It is the Department's view that the provision of subsection 212(5) of the Act apply to a payment for television programming received by satellite that is sourced in videotapes. Thus, the withholding tax requirements are the same as in (1) above.

• 3) Payments for the use of live copyright programming and payments for the use of non-copyright live broadcasting.

As the issue of withholding for these payments is presently under review we are not in a position to comment thereon at this time.

• 4) Live-to-Tape Programming

Payments for broadcasts sourced in videotapes are subject to withholding tax pursuant to subsection 212(5) of the Act. The withholding tax is reduced to 10% pursuant to Article XII of the new Canada-U.S. Treaty.

• 5) Subsection 212(5) of the Act applies to an amount paid to a non-resident for the right to use videotapes in connection with television in Canada. If that is the intended use, then this provision applies whether the use is by the payor or a third party. Examples of where subsection 212(5) applies when"use" is by a third party could include the following:
• 1. payments made by a television network that provides its signal sourced in videotapes to its affiliated stations; or
• 2. payments made by a merchandising company that purchases the rights to a program and in turn allows a television station to broadcast the program.

The merchandising company is required to withhold regardless of the consideration it may arrange with the television broadcaster.

• 6) If a contract with a non-resident specifies that the Canadian payer will bear all withholding tax, the withholding tax is calculated on the payment grossed up for the withholding tax the Canadian payer is bearing on behalf of the non-resident. In other words, the payment made to the non-resident represents 85% of the grossed-up amount. As an example, if the payment made was $100 it would represent an actual payment of$117.65 of which $17,65 would be withholding tax, assuming a rate of withholding of 15%.
• 7) The withholding of 15% pursuant to section 105 of the Income Tax Regulations is in respect of a possible liability for tax. The requirement to withhold applies to the actual amount of the payment, irrespective of the fact that the payment may contain a reimbursement of specified expenses. However, a payor may apply to a local District Taxation Office to determine whether a waiver can be obtained in the particular circumstances.

We trust these comments will be of assistance.