16 February 1996 External T.I. 9512725 - PART XIII - PAYMENTS FOR RIGHT TO BROADCAST

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.

Principal Issues:

Whether a payment made for the right to broadcast a live scripted production staged in the U.S. is taxable under Part XIII of the Act.

Position:

Yes it is taxable.

Reasons:

The right to broadcast the production is a right to communicate a literary, dramatic, musical or artistic work to the public by telecommunication is described in paragraph 3(1)(f) of the Copyright Act. This right to telecommunicate the work is a separate and distinct copyright. Not being a right to produce or reproduce the work, the payment therefor would not be exempt from Part XIII tax by virtue of subparagraph 212(1)(d)(vi) of the Act.

		951272
XXXXXXXXXX	David R. Senécal

Attention: XXXXXXXXXX

February 16, 1996

Dear Sirs:

Re: Payments to Non-residents for Broadcasting Rights

This is in reply to your letter of April 24, 1995, wherein you request our views as to whether the payments made to a non-resident of Canada in the below-described situation would be subject to tax pursuant to Part XIII of the Income Tax Act (the "Act"). We apologize for the delay in responding to your enquiry.

Facts

A resident of the United States stages a live dramatic scripted production in that country. The production is broadcast live in Canada through Canadian Pay TV stations to Canadian subscribers. The live broadcast signal is transmitted directly to the Canadian subscribers without any delay. There is no censorship, reproduction onto video tape or other medium, editing, or other type of manipulation of the broadcast which could cause a delay whatsoever. The dramatic production is subject to Canadian copyright.

Comments

The specificity of the facts presented in your letter would suggest that your enquiry deals with an actual rather than a hypothetical fact situation. We are, therefore, unable to provide our views with respect to the particular payments to which you refer.

Further to paragraph 21 of Information Circular 70-6R2, interpretation requests relating to contemplated transactions should be in the form of an advance ruling request, while requests for a written opinion with respect to completed or ongoing transactions should be addressed to the appropriate Tax Services Office of Revenue Canada. Nevertheless, we are prepared to make the following comments which may or may not apply to your situation.

While your understanding of Revenue Canada's position on this issue prior to 1988 is not necessarily correct, to avoid any further confusion, we will limit our comments to the department's current position.

Based on amendments made to the Copyright Act in 1988 as well as subsequent amendments thereto, we are of the opinion that the right described in paragraph 3(1)(f) of the Copyright Act, as being the right to communicate any literary, dramatic, musical or artistic work to the public by telecommunication, is an exclusive and distinct copyright. In particular, it is a separate copyright from the right to produce or reproduce.

If, in fact, the work described above is a dramatic work subject to copyright in Canada, it is our view that the right granted to the Canadian Pay TV station to broadcast the performance is a copyright described in paragraph 3(1)(f) of the Copyright Act. Consequently, it is not a payment in respect of the production or reproduction of a literary, dramatic, musical or artistic work.

It is, therefore, our position that payments for the right to broadcast live in Canada a dramatic work, whether that work is scripted or non-scripted, are subject to Part XIII tax pursuant to subparagraph 212(1)(d)(i) of the Act.

For the same reason, it is also our view that paragraph 3 of Article XII of the Canada-U.S. Income Tax Convention (the "Convention") would not apply to prevent Canada from taxing the payments in accordance with the provisions of paragraph 2 of that Article.

Canada's right to tax payments made to U.S. residents in respect of live broadcasting transmissions is, in our view, evidenced by the amendments to paragraph 3 of Article XII which are proposed in the revised Protocol amending the Convention and which was signed on March 17, 1995. Article 7 of the Protocol will modify paragraph 3 to allow the Contracting States to reach an agreement, through an exchange of diplomatic notes, to exempt payments made for certain live broadcasting transmissions. In our opinion, the need to provide this mechanism presupposes that the Contracting States otherwise have the right to tax such payments pursuant to paragraph 2 of Article XII of the Convention.

We trust that our comments will be of assistance.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch