27 June 1996 External T.I. 9605225 - ARTICLE XII US CONVENTION - 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:

Article XII paragraph 3 of the U.S. Convention - Are payments for the use of a database for the use of information concerning commercial experience?

Position:

Yes based on these facts (agreements provided). Still question of fact if meets second requirement for exemption that not in connection with a rental or franchise agreement.

Reasons:

Law.

XXXXXXXXXX							J. Stalker
									960522

Attention: XXXXXXXXXX

June 27, 1996

Dear Sirs:

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

We are writing in response to your letter dated February 1, 1996 in respect of payments made for access to a U.S. database, which followed up on our letter to you of January 22, 1996. As in your previous letter to us of November 30, 1995, 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. However, in this letter you have asked us to review two typical subscription agreements describing the rights granted by two US resident suppliers to the Canadian resident.

We note that the agreements you have forwarded do not appear to be complete. However, based on what you have provided to us, it appears that most of the payments would be made "for the use of, or the right to use, ... any information concerning industrial, commercial or scientific experience", although part of the payment for the CD-ROM product would appear to also be for the use of or the right to use software. It remains a question of fact whether or not the information is being provided in connection with a rental or franchise agreement.

As in our previous letter, 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 International Division
Income Tax Rulings and Interpretations Directorate