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.
RE: Article XIIIC Canada-U.S. Tax Convention
This is in reply to your memorandum of September 25, 1981 concerning payments made to U.S. residents for the use of computer software packages.
For a number of years, it has been the position of the Department that a payment for the use of a computer software package comes within the purview of Article XIIIC of the Canada-U.S. Convention. This view has been expressed to several district offices as well as to various accounting and law firms.
The above position was again reviewed in 1979 and it was decided that it should not be changed. This decision was based on the premise that a reasonable argument could be made that since the software programs are subject to protection by copyright, a payment for the use of same (whether by a taxpayer who uses it internally or by one who uses it to provide a service to others) could be said to be a "royalty for the right to use copyrights" and thereby exempted by virtue of Article XIIIC of the Convention. Also, since the Canada-U.S. Convention was under study at the time and when ratified would eliminate such exemption, it was felt that a change in policy, without exceedingly strong grounds, would not be desirable.
It should be mentioned that for purposes of the current Canada-U.S. Convention, the Department has accepted the decision of the Federal Court of Appeal in the Saint John Shipbuilding case (80 DTC 6272). Accordingly, payments made to U.S. residents for the use of computer software programs will not constitute rentals or royalties for purposes of the Convention, to the extent that the payments and circumstances are similar to those in that case. The effect of this is that Article XIIIC is not relevant and if the U.S. resident is not carrying on business in Canada through a permanent establishment, Article I of the Convention will exempt it from tax.
The wording in the new (yet to be ratified) Canada-U.S. Convention is such that the type of payments which were the subject matter of the Saint John Shipbuilding case will constitute a royalty.
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© Her Majesty the Queen in Right of Canada, 1981
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© Sa Majesté la Reine du Chef du Canada, 1981
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