22 February 2011 External T.I. 2010-0374421E5 - Motion Picture Copyright Royalties

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.

Principal Issues: Does the full exemption from withholding taxes under the Canada-U.S. Tax Convention with respect to copyright royalties for the production and reproduction of motion pictures and other works for private home use, apply to the U.K., France and Thailand Tax Conventions.

Position: No

Reasons: Although the wording is similar to the other convention, the exemption under the Canada - U.S. Convention is based on its technical explanations.

XXXXXXXXXX 								2010-037442
									Ann Townsend
February 22, 2011

Dear XXXXXXXXXX :

Re: Motion Picture Copyright Royalties paid to Non-Residents

I am writing in response to your letter dated May 11, 2010 concerning non-resident withholding tax on copyright royalties for the reproduction of motion picture films on videos for private home use. In particular, you are asking if the full exemption from withholding tax that is provided under paragraph 3 of Article XII of the Canada-U.S. Tax Convention, similarly applies under the tax conventions with the United Kingdom (U.K.), France and Thailand.

Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

Paragraph 212(5)(a) of the Income Tax Act ("ITA") imposes a 25 per cent withholding tax on amounts paid or credited to a non-resident as a rental or royalty for the use of a motion picture film that has been used or reproduced in Canada. Similarly, paragraph 212(1)(b) imposes a 25 per cent withholding tax on amounts paid or credited to a non-resident for the use of a film, video tape or other means of production or reproduction for use in connection with television, where such film or tape has been or is to be used or reproduced in Canada. The amount of withholding tax may be reduced or eliminated on payments made to non-residents of countries in which Canada has a tax convention.

Based on the technical explanation of the Canada-U.S. Tax Convention, copyright royalties and other like payments with respect to the production or reproduction of any literary, dramatic, musical, or artistic work, including royalties for motion pictures and other works on videotape or other means of reproduction for private (home) use, are fully exempt from withholding tax under Article XII of the convention. This exemption at source does not apply to copyright royalties in connection with television broadcasting. Such royalties are subject to tax at a maximum rate of 10 percent in the Contracting State in which they arise.

Although paragraph 3 of Article XII of the Canada - U.S. Tax Convention is similar in wording to the other tax conventions you noted, the interpretation of this paragraph is based on the technical explanation. Technical explanations and memorandums between the treaty negotiators of a treaty are required to be taken into consideration when interpreting a tax convention. However, the same technical explanations cannot be used to interpret tax conventions negotiated with different countries. The other tax conventions in question do not have technical explanations that provide for a similar exemption as under the Canada - U.S. Tax Convention. Therefore, copyright royalties with respect to the reproduction of motion picture films on videos for private home use are not fully exempt from withholding tax under the tax conventions Canada has with the U.K., France or Thailand. Each of these tax conventions only reduce the withholding tax rate from 25 per cent as provided for in Part XIII of the ITA, to 10 per cent in the case of both France and the U.K., and to 15 per cent in the case of Thailand.

We trust these comments are helpful.

Yours truly,

Randy Hewlett
Manager
for Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch