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: Argentina tax payable on rental of software from a Canadian company.
Position: Article 12 of Canada-Argentina Income Tax Convention dealing with royalties.
Reasons: Article 12 of Canada-Argentina Income Tax Convention
XXXXXXXXXX 982008
G. Middleton
Attention: XXXXXXXXXX (613) 957-2122
September 8, 1998
Dear Sir:
This is in reply to your fax to Ted MacKay dated July 15 and to your telephone conversation with Ken Major in August concerning the tax withheld and paid to the government of Argentina by your customer in Argentina on the payments the customer makes to your company, XXXXXXXXXX for the rental of software from XXXXXXXXXX.
We understand that XXXXXXXXXX is not carrying on business in Argentina and that XXXXXXXXXX is receiving rental payments from the customer in Argentina under a license agreement with XXXXXXXXXX for the use of computer software.
Based on our understanding of the facts, the rental payments for the software would fall under the meaning of the term "royalties" in paragraph 3 of Article 12 of the Canada-Argentina Income Tax Convention (the "Convention") as payments for the use of, or the right to use, any secret process or for information concerning industrial, commercial or scientific experience. Accordingly, by virtue of paragraph 2(c) of Article 12, the amount of Argentinean tax payable on the software rental payments made to XXXXXXXXXX is limited to 10% of the gross amount of the rental payments.
By virtue of the provisions in Articles 12 and 23 of the Convention and section 126 of the Canadian Income Tax Act (the "Act"), the amount of tax that was payable and paid to the government of Argentina on the software rental payments (i.e. 10% of the gross rental payments) would qualify as a non-business-income tax of XXXXXXXXXX and XXXXXXXXXX would be entitled to claim a foreign tax credit under subsection 126(1) of the Act in respect of such tax.
If the amount of Argentinean tax paid on the software rental payments made to XXXXXXXXXX exceeded the 10% limitation set out in paragraph 2(c) of Article 12 of the Convention (as indicated by the copies of the invoices attached to your fax), then XXXXXXXXXX should make an application to the tax authorities of Argentina for a refund of such excess amount. Any amount of Argentinean tax paid which is in excess of such 10% limitation would not qualify as a non-business-income tax under section 126 of the Act since the excess was not payable on the software rental payments by virtue of paragraph 2(c) of Article 12 of the Convention.
The above comments are based on our understanding of the facts and reflect our interpretation of the laws in the Act and the Convention. However, we would like to point out that we are not (and we cannot) provide you with any interpretation on the income tax laws of Argentina.
We trust the above comments will be of some assistance to you.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1998
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1998
Email this Content