12 March 1992 External T.I. 5-910839

With respect to an advance made by a Canadian licensor to a U.S. licensor that was repayable only out of royalties to be earned by the licensor, RC stated that "generally where the agreements in question do not contain an unconditional covenant to repay the principal amount of money advanced, the transaction cannot be considered to represent the loaning of money".

With respect to the withholding tax status of royalties to be paid by a Canadian licensee to an arm's length U.S. licensor, RC stated that "provided a copy of a computer software program that is supplied to an end user by Canco has been produced or reproduced by Canco, it is our view that a software licence fee paid or credited (against the Advance) by Canco to Usco in respect thereof would be exempt from Part XIII ... withholding tax ...".