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.
942143
XXXXXXXXXX David R.Senécal
December 20, 1994
Dear XXXXXXXXXX:
This is in reply to your letter of August 5, 1994, wherein you request our views as to application of Part XIII of the Income Tax Act (the "ACT") in the following situation:
A Canadian company pays royalties to a resident of the United Kingdom for the right to reproduce certain movies, television series, children's programs, etc. in video format with the resulting videos being sold to distributors who will in turn rent or sell the videos to the general public for private use.
It would appear from the precise nature of your query that we are being asked to provide our views with respect to contemplated transactions. As indicated in paragraph 21 of Information Circular 70-6R2, such interpretations are to be requested in the form of an advance ruling request. We are also unable to provide our definitive views where we have not been provided with specific details regarding the contractual arrangements between the parties. Notwithstanding the foregoing, we offer the following general comments which may or may not apply to your particular situation.
It is our view that subsection 212(5) of the Act would apply to the type of royalty payments described above on the basis that the provision is more specific than subparagraphs 212(1)(d)(i) and (vi) of the Act which would otherwise apply. Furthermore, it is our view that the term "in connection with television" as used in subsection 212(5) is very broad and would apply to videotapes destined for private home use.
Having said this, we view the royalty payments under consideration as being exempt from tax in Canada by virtue of paragraph 3 of Article 12 of the Canada-U.K. Income Tax Convention; the said payments representing copyright royalties in respect of the reproduction of any literary, dramatic, musical or artistic work other than in respect of motion pictures and works on film, videotape or other means of reproduction for use in connection with television broadcasting.
It should be noted, however, that if the payments are computed on the basis of the number of times a video movie is shown and/or viewed rather than on the number of copies of the video produced, the payments would not fall within the exemption in paragraph 3 of Article 12 as they would not be considered to be in respect of the production or reproduction of the work.
We trust that the above comments will be of assistance to you.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch
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