5 July 1989 Income Tax Severed Letter 8-0293

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.

Appeals Branch                          Specialty Rulings Directorate
Appeals & Referrals Division            K.B. Harding
                                        957-2129

Mr. B. Toyota

July 5, 1989 8-0293

Dear XXX:

Subject: Canada-U.S. Income Tax Convention (1980) (the "Convention") Article XII Royalties on Motion Pictures

This is in reply to your memorandum of May 1, 1989 wherein you are concerned about our position not to tax payments in respect to videotapes of motion picture films under the Convention.

Our view, which is based on the comments in paragraph 3 of Article XII of the Technical Explanation to the Convention which states "... copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or artistic work, including royalties from such works on videotape ... for private (home) use ...", is that the underlined words include motion pictures. In our opinion, while the exemption from tax provided for in paragraph 3 of Article XII of the Convention does not generally apply to motion pictures (e.g., payments for motion pictures to be shown in the cinema would not be exempt), motion pictures that are on videotape and are for private (home) use would fall within the exemption on the basis that "works on videotape" is more specific.

XXX. The wording in the brackets in paragraph 3 Article XII of the Convention may create some ambiguity since it was not clear whether the words "for use in connection with television" applied only to the last term "other means of reproduction" or whether it applied to the other antecedents in the brackets.

A. Driedger at page 134 of his book entitled Construction of Statutes, (copy attached) states that a careful writer would put a comma before the qualifying words if it was intended to apply to all the antecedents and no comma if it was intended to apply only to the last. However, his comments indicate that the fact that there is a comma after film and none after reproduction is not conclusive as to the construction to be placed upon it. However he also points out several cases where these rules were or were not followed by the Courts.

Since the wording in paragraph 3 of Article XII of the Convention may be considered ambiguous, the fact that both the Technical Explanation and Provincial and International Relations Division indicate that the intention was to provide an exemption for the right to tax royalties paid to a U.S. owner with respect to video cassettes for private (home) use, we agreed to interpret the Article in the manner that was in line with the intention. Accordingly, we are prepared to provide an exemption with respect to movies recorded on video cassettes used for private (home) use.

We trust these comments explain the reason for the position taken.

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