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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Scientific Research & Experimental Development (SR&ED)
This is in reply to your letter of July 30, 1993 wherein you requested further clarification that a fee arrangement charged by a non-resident company to a Canadian taxpayer for the right to manufacture or produce a product developed as a result of the SR&ED performed in Canada would not jeopardize the eligibility of the SR&ED expenditures for investment tax credits (ITC).
Based on the Department's comments in paragraph 21 of Information Circular 70-6R2, we are unable to provide confirmation of the income tax effects of the particular situation outlined in your letter. However, we are prepared to offer the following general comments.
Interpretation Bulletin IT-151R4, released on August 16, 1993, deals with SR&ED expenditures. Paragraph 12 outlines the Department's policy concerning the expression "entitlement to exploit the results". It is mentioned that the determination of whether a taxpayer is entitled to exploit the results of SR&ED is a question of fact that can only be determined on a case-by-case basis. It is also mentioned that "this expression will be met if a taxpayer has the right to use a patent that results from the SR&ED project even if a royalty or similar fee for the use of the patent is charged". Furthermore, the Department considers that this requirement is met "in cases where the taxpayer is entitled to distribute and market any product that results from the SR&ED project".
As a result, it is our opinion that a subsequent charge in the form of a technical fee, royalty or license fee charged by a non-resident company to a Canadian taxpayer would not jeopardize the eligibility of the Canadian taxpayer for ITC.
These comments represent our opinion of the law as it applies generally. As indicated in paragraph 21 of Information Circular 70- 6R2, this opinion is not a ruling and, accordingly, is not binding on the Department.
We hope our comments will be of assistance to you.
Yours truly,
for DirectorManufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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