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.
RE: XXX
This is in reply to your memorandum of April 25 concerning payments made by XXX to XXX a U.S. resident.
Since the taxpayer's representative has not forwarded the additional information which you requested from them on or about June 1-, we consider it appropriate to not wait any longer and to express our views based on the available information.
We have reviewed the documentation submitted on April 10 by the taxpayer's representative, XXX, as well as the interim reply which you sent to that XXX on April 24. Based on the submitted material, we agree with the content of your reply with respect to the Part XIII tax implications except that the 5% and 10% royalty payments would in our view be caught by subparagraph 22(1)(d)(i) of the Act, rather than by subparagraph 212(1)(d)(ii) as stated in No.2 of your letter. It is our view that such payments are with respect to the same property as is the lump sum payment. Your comments that the lump sum payment is subject to Part XIII tax is supported by the comments in the Farmparts case [[1980] C.T.C. 205] [80 DTC 6157] (60 DTC 6157). The withholding rate would of course be reduced to 10% pursuant to Article XII of the U.S. Treaty.
With respect to the services performed in the U.S. by XXX, we agree that Regulation 105 withholding would not be applicable. We see no reason, however, why the amounts paid by XXX must represent actual costs or expenditures incurred by XXX on behalf of XXX. As long as the amount paid by XXX is reasonable for the services rendered (e.g. they do not include a "hidden" royalty), there would be no entitlement on our part to withhold under either Part XIII or Regulation 105.
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