7 November 1994 External T.I. 9411705 - PAYMENT FOR RIGHT TO USE A PROF. ATHLETE'S NAME

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.

Principales Questions:

Déterminer si le paiement, qui n'est pas une redevance, est effectué pour l'usage de biens décrits à l'alinéa 212(1)d)i) de la Loi ou est de nature capitale (pour l'acquisition)

Position Adoptée:

Le paiement est effectué pour l'usage de biens énumérés à l'alinéa 212(1)d)i) de la Loi.

Raisons POUR POSITION ADOPTÉE:

L'acquisition de divers droits pour une période limitée (une année) démontre clairement le paiement est fait pour l'usage plutôt que pour l'acquisition. A l'alinéa 212(1)d)i), il n'est pas nécessaire que le paiement soit une redevance ou un paiement semblable. En effet, cet alinéa vise un paiement forfétaire si ce dernier est effectué pour l'usage de biens décrits à ce même alinéa.

5-941170
XXXXXXXXXX Carole Pronovost
(613) 957-8953
Attention: XXXXXXXXXX

November 7, 1994

Dear Sirs:

Re: Part XIII Non-Resident Withholding Tax

This is in reply to your letter dated May 2, 1994 concerning the interpretation of section 212 of the Income Tax Act (the "Act"). In summary, you describe the following situation:

XXXXXXXXXX

In consideration, Canco agrees to pay the player a fixed fee during each year of the endorsement agreement.

You seek our opinion as to whether the fixed fee payable by Canco to the player pursuant to the endorsement agreements is subject to non-resident withholding under Part XIII of the Act and whether relief can be had under the Canada-United States Income Tax Convention (1980)(the "Convention").

Our comments

It appears that the interpretation you seek relates to proposed transactions to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R2 dated September, 1990 and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance tax ruling. If you wish to obtain an advance income tax ruling for a particular taxpayer with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can offer the following general comments. These may or may not apply to your particular fact situation.

Trade marks are property of an incorporeal nature, and they are classed with patents and copyright, which are considered as "choses in action". A trade mark can be acquired by "use" or by "registration" under the Trade Marks Act. Names of individuals are not generally "trademarkeable" unless the name and the product associated with the name are considered to be distinctive (as would be the case with certain hockey players). The name of certain hockey players clearly connotes more than a person's name in the public's mind and it would appear that names related to or associated with the name of certain hockey players could be registered as trade marks.

Therefore, it is our view that a payment for the right to use a professional athlete's name, as in the situation described above, would be subject to withholding tax pursuant to subparagraph 212(1)(d)(i) of the Act as a payment for the use or the right to use a trade name or trade mark or other thing whatever for the purposes of that provision. This would exclude however any payment or part of a payment in respect of services rendered, and assumes that the amount (endorsement fees, etc.) does not represent employment income.

We would also like to point out that a payment does not have to constitute a royalty in order to be subject to tax under paragraph 212(1)(d). In this regard, any payment for the use or the right to use a trade mark is subject to withholding tax under subparagraph 212(1)(d)(i) of the Act.

As concerns the application of Article XII of the Convention, it is our view that a payment for the use of or the right to use a "trade name" in a situation such as that described above can be considered to be a payment for the use of or the right to use a "trade mark" as noted above, and consequently, a payment of any kind received as consideration for the use of or the right to use a trade-name are royalties within the meaning of paragraph 4 of Article XII of the Convention.

By virtue of Article XII (2) of the Convention however, the tax charged to a resident of the United States in respect of royalties cannot exceed 10% of the royalty.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch