29 May 1986 Income Tax Severed Letter 5-1145

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 of February 25, 1986 requesting a technical interpretation in connection with a hypothetical fact situation therein.

You specifically ask that we advise you whether or not fees paid by a resident corporation to a resident of the U.S. for American stock and commodity market quotations are subject to withholding tax under paragraph 212(1)(d) of the Income Tax Act. The quotations are transmitted to the Canadian payor via telecommunication lines on a continuous basis by the nonresident payee who does not have a permanent establishment in Canada. The payee owns and has the right to sell the quotations.

Our Comments

Whether or not payment to a U.S. resident for the provision of American stock and commodity market quotations in the manner described above, are subject to Part XIII withholding is a question of fact. From the limited information contained in your letter we are unable to make such a determination with certainty. We suggest therefore that a copy of the agreement covering the arrangement, along with other pertinent data, be made available to the staff of the Toronto District Office who should be able to make a definitive determination for you after their review of all the facts.

Notwithstanding the foregoing, we are prepared to comment on the matter generally.

The words in paragraph 212(1)(d) are very broad, requiring withholding tax in respect of a payment for rent, royalty or similar payment ... for the use of or the right to use in Canada any property ... or other thing.

In our view this could include payments for the stock and commodity quotations referred to above, being property of the U.S. resident. Additionally, the payments could be considered to be for "information concerning ... commercial ... experience" if the information provided is explained, interpreted, integrated, or compared in any way. If such is the case the provisions of subparagraph 212(1)(d)(ii) would apply. Similarly, subparagraph 212(1)(d)(iii) also must be considered if the provision of the information entails "services of a ... commercial character ...". Where subparagraphs 212(1)(d)(ii) or (iii) apply, the total amount payable must be dependent in whole or in part upon (A) the use to be made thereof or the benefit to be derived therefrom, (B) production or sales of goods or services, or (C) profits.

As indicated earlier, the information provided does not establish these facts clearly.

Finally, as you indicate, unless such fees are "royalties" for purposes of the Canada-U.S. Treaty, the payee is not liable to tax in Canada in respect of the payments, and no withholding would be required by the payor. In this respect we note that the definition in Article XII of the Treaty includes payments for information concerning commercial experience. The comments above with respect to subparagraph 212(1)(d)(ii) would also apply here.

We regret being unable to give you a more conclusive answer at this time, but trust our comments may prove helpful in this matter.