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.
This is in reply to your letter of April 30, 1987 concerning the treatment to be accorded royalties paid by a Canadian corporation to a United States holder of a copyright for the right to reproduce from a master copy videocassettes for home use in Canada where the subject matter of the videocassette is a movie which has previously been distributed theatrically.
Where a videotape, videocassette or videodisk is produced from a motion picture film, the right to produce or reproduce the videotape, videocassette or videodisk represents, in our view, a right in or to the use of the underlying motion picture film. Therefore, any payments made in respect of such a right are subject to Part XIII tax by virtue of paragraph 212(5)(a) of the Income Tax Act, subject to any overriding provisions of a bilateral income tax convention.
It is our opinion that as long as the produced or reproduced item (videotape, videocassette or videodisk) is for private (home) use, a payment for the right to produce or reproduce such an item will be exempt from Part XIII tax by virtue of paragraph 3 of Article XII of the Canada-U.S. Income Tax Convention (1980) (the "Convention"), notwithstanding that the underlying source of that item is a motion picture film. This exemption, however, only relates to such payments made on or after October 1, 1984 as provided by paragraph 2(a) of Article XXX of the Convention.
In our view, the above position is in accord with the comments on paragraph 3 of Article XII of the Convention in the U.S. Treasury Department's Technical Explanation, dated April 26, 1984 which has been accepted by Canada.
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© Her Majesty the Queen in Right of Canada, 1987
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© Sa Majesté la Reine du Chef du Canada, 1987
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