24 June 1992 Income Tax Severed Letter 9207455 - Royalty Paid to Reproduce Pages in a Book

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.

SUBJECT: ROYALTY PAID TO REPRODUCE PAGES IN A BOOK-(7661) SECTION: 212(1)(d)(vi), ART 12]

• 5- 920745 G.D. Middleton (613) 957-2122

Attention: XXX

June 24, 1992

Dear Sirs:

Re: Withholding Tax on Copyright Payments

This is in reply to your letter dated March 6, 1992 wherein you requested our opinion on whether withholding tax would be required on a fee/royalty paid to a U.S. publishing company in the following hypothetical situation:

• 1. A U.S. publishing company ("USCO") owns the copyrights in respect of a book (e.g. a book on management, finance, etc.).
• 2. A Canadian resident company ("CANCO") obtains permission from USCO to reproduce and make copies of certain sections of the book for CANCO's use in preparing course materials for internal training.
• 3. CANCO pays a fee/royalty to USCO for the right to reproduce (i.e. make copies of) certain sections of the book and use the copies in its training materials.

Based on our understanding of the circumstances, it would appear that the fee/royalty paid by CANCO to USCO is a payment in respect of a copyright in the book in respect of the right to reproduce certain parts of the book. Accordingly, it is our opinion that the fee/royalty payment is exempt from Part XIII withholding tax by virtue of the exemption in subparagraph 212(1)(d)(vi) of the Income Tax Act (the "Act").

With respect to your additional comments, it is our view that:

• (a) Paragraph 3 of Article XII of the Canada-U.S. 1980 Tax Convention (the "U.S Convention") indicates that a copyright royalty or other like payment in respect of the reproduction of any literary work arising in a Contracting State (i.e. Canada) and beneficially owned by a resident of the other Contracting State (i.e. U.S.) is taxable only in the other Contracting State (i.e. U.S.).
• (b) The definitions of "literary work", "every original literary work" and "copyright" which are contained in sections 2 and 3 of the Canadian Copyright Act are used to interpret the meanings of the words "copyright" and "literary work" that are found in subparagraph 212(1)(d)(vi) of the Act and paragraph 3 of Article XII of the U.S. Convention. Furthermore, a work or book about finance or management could be covered by those definitions.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch