Words and Phrases - "television"

Canco streams movies and TV shows (the “digital content”) to its Canadian and foreign subscribers (who pay monthly fees) through a TV video stream and a digital content library. Canco pays a royalty to an arm’s length U.K. content provider (“U.K. Content Provider”) that is based on the amount of viewing of the digital content by Canco’s subscribers. Canco either stores its digital content on a server that is located outside of Canada or it is streamed directly by the U.K. Content Provider to Canco’s subscribers.

CRA found that the royalty payments could be bifurcated between a component taxable under s. 212(5) and a non-taxable component, stating that “a portion of the payments to the U.K. Content Provider relates to the use or reproduction of the digital content outside of Canada since Canco’s server is situated outside of Canada and the foreign subscribers are viewing the streamed content outside of Canada.”

Art. 12 of the Canada-U.K Treaty exempted copyright royalties, but there was an exclusion from this exemption for payments in respect of motion pictures or of works on film, videotape or other means of reproduction for use in connection with television broadcasting. CRA rejected an argument that the definition of “broadcasting” in the Interpretation Act had the effect of making this exclusion inapplicable to TV shows. Instead “an ordinary meaning was intended to be given to the words ‘television’ and ‘broadcasting’ and … their meaning, under either domestic or international law, is broad enough to include the digital streaming of television content” – so that the applicable Treaty rate was 10%, not zero. CRA then stated:

[T]he reduced withholding tax rate of 10% could also apply for the payments related to Canco’s foreign subscribers if the right in or to the use of the digital content was partly used or reproduced in Canada prior to being streamed to these foreign subscribers for viewing outside of Canada or if it was being streamed in Canada.