26 April 1988 Income Tax Severed Letter 5-5590 - [Treatment of payments for computer licensing fees to residents of Denmark]

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.

O. Laurikainen (613) 957-2125

April 26, 1988

Dear Sirs:

Re: Treatment of payments for computer licensing fees to residents of Denmark

This is in reply to your 1étter of February 17, 1988 wherein you requested our opinion as to whether we concur with your views on the taxability of the above captioned payments.

It is your view that payments made to a resident of Denmark for the right to use computer software in Canada for an indefinite period do not constitute rents and royalties for the purposes of the Canada-Denmark Income Tax Agreement (the "Canada-Denmark Agreement") because of the decision taken in the Queen v. Saint John Shipbuilding & Dry Dock Co. Ltd. case (the "Saint John Shipbuilding case"). Therefore, you are of the view that such amounts are not subject to withholding tax in Canada when paid to a resident of Denmark.

It is our position that the principle established in the Saint John Shipbuilding case does not apply to your situation. The term "rents and royalties" was defined to paragraph 6(9) of the Protocol to the 1942 Canada-U.S. Tax Convention (the "Convention") and the Court was of the view that the definition in the Convention was not broad enough to include a payment for the use of computer software in perpetuity even though such amounts fall within paragraph 212(1)(d) of the Act. Since the Canada-Denmark Agreement does not define the term "rents and royalties", the application of paragraph 212(1)(d) of the Act is not restricted by such Agreement.

With reference to your comments on paragraph 7 of Interpretation Bulletin IT-303 , the first sentence of that paragraph reads that "the Department considers that the words "rent" and "royalty" are used in a broad sense and are not necessarily restricted to periodic payments". Accordingly, it is our view that the Bulletin confirms the position set out above.

We trust that you will find our comments helpful.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch