22 January 1996 External T.I. 9532015 - ARTICLE XII - PAYMENTS FOR USE OF DATABASE

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:

Are payments for use of a database eligible for exemption from withholding tax under paragraph 3(c) of Article XII of US Convention?

Position:

Question of fact.

Reasons:

Payments must be only for use of type of information described, and information cannot be provided in connection with a rental or franchise agreement.

XXXXXXXXXX				953201

Attention: XXXXXXXXXX

January 22, 1996

Dear Sirs:

Re: Article XII of the Canada-U.S. Convention (the "Convention")

We are writing in response to your letter dated November 30, 1995 in respect of payments made for access to a U.S. database. You have requested our views on whether payments made by a Canadian resident user to a US resident supplier for accessing an information database located in the US via a modem located in Canada or for subscribing to an information CD-ROM updated periodically will be exempt from Canadian withholding tax under paragraph 3(c) of Article XII of the Convention as amended by the Protocol signed on March 17, 1995 and ratified on November 9, 1995.

Whether such payments would be made "for the use of, or the right to use, ... any information concerning industrial, commercial or scientific experience" as required by paragraph 3(c) of Article XII of the Convention is a question of fact which can only be determined with full knowledge of the particular situation. The relevant agreements would have to be examined to ensure that the payments are for the use of such information, that they are solely for such purpose, and that the information is not being provided in connection with a rental or franchise agreement. If the agreements do indicate this sole use, the payments would be eligible for exemption under the Convention.

We emphasize that these are our views on an interpretation of a treaty provision and should not be construed as having any impact on the obligation to withhold under the Income Tax Act (Canada). Any authorization not to withhold must be sought from your Taxation Services Office.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.

Yours truly,

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