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.
Dear Sirs:
This is in reply to your letter of November 24, 1987 concerning the treatment of payments in the following hypothetical situation.
Your letter indicates that you are concerned with a Canadian taxpayer who is carrying on business in Canada and is making a royalty payment to a U.S. person in respect of a licence to use computer software in Canada.
It is your opinion that such a royalty payment is not subject to withholding tax if Canada under paragraph 212(1)(d) of the Act by virtue of the exemption provided under subparagraph 212(1)(d)(vi).
As you are aware, it has been Revenue Canada's position since July 1, 1983 that Part XIII tax should be withheld on all rental and royalty payments made to non-residents for the right to use computer software in Canada. We have been questioned whether our position remains the same in view of the decision handed down by the Federal Court Trial Division and upheld by the Federal Court of Appeal in the case of Apple Computer, Inc., Apple Canada Inc. and MacIntosh Computers Limited.
It is our understanding that the above case has been appealed to the Supreme Court of Canada and is scheduled to be heard on February 22, 1988. In view of the fact that the case has been appealed, it continues to be Revenue Canada's position that payments made to a non-resident for the use of computer software in Canada will be subject to withholding tax pursuant to paragraph 212(1)(d) since such amounts do not in our view fall within the exemption set out in subparagraph 212(1)(d)(vi) of the Act.
When this matter is finalized in the Supreme Court or if the Copyright Act is amended before the decision is handed down, we will have to review our position relative to the treatment of payments made for the use of computer software at that time.
We trust these comments are useful for your purposes.
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