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.
Dear Sirs:
Re: Computer Software License Fees Earned from Canadian Sources
This is in reply to your letter dated June 8, 1989. You have asked us to review the standard Statsoft computer single user license agreement and to comment whether in our view license fees paid to Statsoft by Canadian user are subject to Canadian withholding tax.
In our view, the one time fee paid by a
24(1) The transaction cannot be considered an
outright purchase due to the various restrictions on the use of
the software listed in the license agreement. Accordingly, as
set out in our letter dated October 2, 1986 to the 24(1)
(the "1986 letter") which you mention in your letter, Canada
has the right to tax such royalty income earned by a resident of
the United States at the reduced rate of 10% under Article XII of
the Canada U.S. Income Tax Convention (1980). It is our
understanding that in most cases this Canadian tax is creditable
against U.S. income taxes.
As indicated in the 1986 letter, telephone hotline services, where the person providing the information or advice on such hotlines is outside Canada, will not be considered to be rendered in Canada. Thus any fee for such services will not be subject to Canadian income tax. However, in order that it will not be considered part of the computer software license fee which is subject to Canadian withholding tax, the payment for these services must be optional and reasonable in relation to the software license fee. having read your letter and the 24(1) agreement, we can find no reason to believe that the hotline services are optional services that are rendered for a separate fee. Accordingly, it is our view that the 24(1) license fee is fully subject to Canadian withholding tax.
We trust that this is the information you require.
Yours truly,
fro Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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