A group of corporations, formed and resident in the United States (collectively, “USIP”), own the copyright to artistic work (the “Copyright Property”). An arm’s length corporation (USCo), along with its Canadian subsidiary (Canco) receives a grant (under the “Licensing Agreement”) of the right to use the Copyright Property in connection with the manufacture, sale and distribution of products (manufactured by USCo). At the same time as Canco purchases its products for distribution and sale in Canada from USCo it (along with USCo) pays a fee under the Licensing Agreement for the rights to manufacture, sell and distribute the products that use the Copyright Property. Does s. 212(1)(d)(vi) apply to Canco’s licence fees? CRA responded:
[W]here a payor has entered into a legal agreement with a non-resident for the right to use copyrighted property in connection with the manufacture, sale and distribution of any artistic work in Canada, a royalty or similar payment for that right would be considered to be “on or in respect of a copyright in respect of the production or reproduction of any...artistic work” in subparagraph 212(1)(d)(vi) even if the payor does not manufacture the artistic works, which it distributes under that legal agreement. As such, in our view, such a payment would be exempt from Part XIII tax under subparagraph 212(1)(d)(vi).