23 June 1993 External T.I. 9308505 F - 7661-1 Computer Software Royalties Paid to Non-resident

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.

XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Computer Software Royalties

This is in reply to your letter dated March 11, 1993 concerning Canadian general sales tax (GST) and income withholding taxes applicable to computer software royalties paid by residents of Canada to a resident of the United States.

We have referred a copy of your letter to Revenue Canada Customs & Excise and asked that they reply direct to you on the portion of your enquiry dealing with the GST.

With respect to the Canadian withholding tax portion of your enquiry, it is our view that a corporation resident in the United States which does not carry on business in Canada through a permanent establishment as defined in Article V of the Canada - U.S. Income Tax Convention (1980) (the "Convention"), is subject to withholding tax under paragraph 212(1)(d) of the Canadian Income Tax Act on payments made by a resident in Canada for the use of computer software. Pursuant to paragraph 2 of Article XII of the Convention, the rate of such withholding tax may not exceed 10%.

In order to confirm whether the payments in question are for the use of computer software or whether the transaction may be considered a purchase of computer software, it is necessary to review the agreements in question. However, it has generally been our experience that a computer software program is licensed and not sold. Ownership of the computer program normally remains with computer software developer.

We trust this is the information you require.

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch