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.
Attention: David Sénécal 912181
SUBJECT: Canada-Germany Income Tax Agreement ("German Treaty") VAT on Royalties
This is in reply to your request for our comments on the decision of the German Federal Fiscal Court that was forwarded to you by the German income tax authorities under cover of a letter dated July 9, 1991, a translation of which you recently forwarded to us.
It would appear from our reading of the translation of the German decision that the German court considered that the vendor/licensor, not the purchaser/licensee, is the person upon whom the German VAT is imposed and who is liable therefore and that accordingly the VAT is included in the vendor's/licensor's income for income tax purposes as described in the first paragraph on page 2 of our Memorandum to you dated May 7, 1991, namely:
"If, on the other hand, the VAT is a tax imposed on the vendor/licensor as the person primarily liable therefore (as opposed to merely being liable in its capacity as a collecting agent with an absolute obligation to collect), as appears to be indicated in the letter to you from the German competent authority dated August 17, 1990, we would be inclined to conclude that the entire amount payable to or for the account of the vendor/licensor or for which the vendor/licensor obtained credit against its VAT liability by virtue of action taken by the purchaser/licensee would be "consideration for the use of, or the right to use, any copyright, (etc.) ..."."
As indicated by our Memorandum to you in respect of this matter dated May 7, 1991, while we considered it likely that the German VAT, like the Canadian GST, is a tax on the purchaser/licensee rather than on the vendor/licensor, we were unable to determine the German law in this regard. We are likewise not in a position to comment on the authoritativeness of the decision of the German court referred to above.
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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