29 November 2022 CTF Roundtable Q. 13, 2022-0950641C6 - Part XIII Tax on Royalties Paid on Broadcasting

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 Part XIII tax apply to payments made for the broadcasting of live sport or artistic events in Canada?

Position: Yes, paragraph 212(1)(d) applies to broadcasting right payments and the exception in subparagraph 212(1)(d)(vi) does not apply to such payments.

Reasons: Definition of "copyright" adopted by the Supreme Court of Canada in Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada.

2022 CTF Annual Tax Conference
CRA Roundtable

Question 13: Part XIII Tax on Royalties Paid on Broadcasting Rights

At the 2011 IFA Conference (footnote 1) , the CRA stated that the position set out in Interpretation Bulletin IT-303SR “Know-how and similar payments to non-residents” (January 1, 1995) [archived] should be followed, such that the exception in subparagraph 212(1)(d)(vi) applied to all payments for copyright in respect of a literary, dramatic, musical or artistic work, unless that payment is for a right referred to in subsection 212(5) (“the 2011 Position”). Consistent with this position, we understand that the exception in subparagraph 212(1)(d)(vi) applies to payments made by a Canadian resident to a non-resident for the right to broadcast live events in Canada such that they are not subject to Canadian withholding tax. For example, payments made by a Canadian broadcaster to acquire the rights from a non-resident to broadcast live sport or artistic events in Canada (“the Broadcast Rights Payments”) fall within the exception of subparagraph 212(1)(d)(vi), unless the Broadcast Rights Payment is in respect of a right referred to in subsection 212(5).

The Supreme Court of Canada (“the SCC”) analyzed the definition of “copyright” under the Copyright Act, R.S.C., 1985, c. C-42 (“the Copyright Act”) in Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada [2012] 2 S.C.R. 231 (“the SCC Decision”) and made a clear distinction between the right to perform in public and the right to produce or reproduce a copyright work.

In light of the SCC Decision, could the CRA confirm whether it is still of the view that Broadcast Rights Payments would be considered as being in respect of a “copyright in respect of the production or reproduction of any literary, musical or artistic work” for purposes of the exception in subparagraph 212(1)(d)(vi)?

CRA Response

The SCC Decision was released in July 2012 and instructs whether, for purposes of the Copyright Act, a payment made for the download over the internet of a copyrighted work is made “in respect of the production or reproduction” of that work. From that perspective, the SCC Decision informs if a payment would benefit from the exception in subparagraph 212(1)(d)(vi) for the purposes of the Act.

The provision at issue in the SCC Decision is paragraph 3(1)(f) of the Copyright Act, which states that copyright owners have the sole right, in the case of any literary, dramatic, musical or artistic work, to communicate the work to the public by telecommunication. What is relevant in the SCC Decision to the application of the exception in subparagraph 212(1)(d)(vi) is the finding of the SCC that the definition of “copyright”, in the introductory paragraph of subsection 3(1) of the Copyright Act, encompasses three separate core rights: (i) the right to perform a work in public; (ii) the right to produce or reproduce a work in any material form; and (iii) the right to publish an unpublished work. According to the majority of the SCC, the rights that are listed in paragraphs (a) to (j) of subsection 3(1) are not self-standing rights and they must be connected to one of the three separate core rights enumerated in the introductory paragraph. The SCC specified that the right to communicate a work to the public by telecommunication in paragraph (f) of the definition of “copyright” in the Copyright Act is connected to the core right to perform a work and not to the right to reproduce permanent copies of the work.

Broadcast Rights Payments are consideration for a right to which paragraph (f) of the definition of “copyright” in the Copyright Act applies, i.e. the right to communicate work to the public by telecommunication. Such right being linked to the core right to perform a work per the SCC Decision, Broadcast Rights Payments cannot be viewed as payments made “in respect of the production or reproduction” of copyrighted work and as such, they are not governed by the exception in subparagraph 212(1)(d)(vi).

The 2011 Position cannot be reconciled with the clear distinction drawn by the SCC Decision between the right to perform a work along with the related right to broadcast the performance and the right to produce or reproduce a work. On that basis, the segment of the 2011 Position dealing with subparagraph 212(1)(d)(vi) ceased to be a correct interpretation of the law and, as a result, unless subsection 212(5) otherwise applied, the CRA was thereafter required to assess Broadcast Rights Payments as being subject to tax in Canada under paragraph 212(1)(d).

Marie-Claude Routhier
2022-095064
November 29, 2022

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 CRA Views 2011-0404511C6, “`212(1)(d)(vi)”, (May 3, 2011)