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.
D.S. Delorey (613) 957-2129
May 9, 1986
Dear Sirs:
This is in reply to your letter of March 3 asking if payments made to you by a Canadian licensee of your computer software are subject to Canadian withholding tax.
Unless exempted by virtue of the 1980 Canada-U.S. Income Tax Convention (the "U.S. Treaty"), payments made to a U.S. resident for the use in Canada of computer software are subject to a 25% Part XIII tax ("Canadian withholding tax") under the Canadian Income Tax Act. This rate is reduced to 10% under the U.S. Treaty.
With respect to educational institutions, Article XXI of the U.-S. Treaty will exempt from Canadian withholding tax payments made to a U.S. educational institution which is exempt from tax in the U.S., except with respect to income from carrying on a business or trade. Because of this exception, it is our view that Article XXI does not exempt from the above mentioned 10% tax the payments made to you for the use of your computer software. Consequently, it is our view that all payments made to you by a Canadian licensee for the use of your computer software are subject to a 10% Canadian withholding tax.
We trust that the above comments will be of assistance.
Yours truly,
ORIGINAL SIGNED BY
Wrm. R. McColm for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1986
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© Sa Majesté la Reine du Chef du Canada, 1986
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