5-903212
Dear Sirs:
This is in reply to your letter of November 2, 1990 concerning your request for a technical interpretation on the application of subsection 212(5) of the Income Tax Act (the "Act") to the following situation.
1. A Canadian company will be granted a worldwide distribution right from a U.S. producer to distribute a television program.
2. The Canadian company will be distributing the television program to broadcasters which are located both in Canada and outside Canada.
3. A separate contract will be negotiated with each broadcaster,
4. The fees which will be charged to the broadcasters will be established based on market rates for the particular production, the length of the licence and the number of times the production will be utilized.
5. The Canadian company, in turn, will be making payments to the U.S. producer equal to the fees received from the broadcasters net of a charge for their service.
Your interpretation of the provisions of subsection 212(5) of the Act is as follows:
(a) Where the right to use the television program is given to a broadcaster for use in Canada, then the payment by the Canadian company to the U.S. producer in respect of that right will be subject to non-resident withholding tax as provided for by subsection 212(5) of the Act.
(b) Where the right to use the television program is given to a broadcaster for use outside Canada, then the payment by the Canadian company to the U.S. producer in respect of such right will not be subject to the non-resident withholding tax as provided for by subsection 212(5) of the Act.
Our Comments
We are in general agreement with your interpretation in (a) above; however, with respect to your views in (b) above, we cannot directly address your specific situation because to do so would require a determination of all the relevant facts. Such determinations are made by the district taxation offices and accordingly, we suggest that you refer your query to the 24(1) District Taxation Office.
Nevertheless, we offer the following comments which may be of assistance to you. Generally speaking, the provisions of subsection 212(5) of the Act will not apply to an amount paid in respect of a particular television program if the program has not been or is not to be used or reproduced in Canada. Where such a program has been or is to be so used or reproduced in Canada as well as in one or more other countries, it is our view that the provisions of subsection 212(5) of the Act will apply to all payments made for a right in or to the use of the television program, notwithstanding that part of the payments may relate to the program's use or reproduction outside Canada. However, the Department may be prepared to review the facts in a particular situation to determine whether a portion of a payment is exempt from Part XIII tax.
With respect to the comments in paragraph 26 of Interpretation Bulletin IT-303, it should be noted that the comments relate to the specific provision contained in subparagraph 212(1)(d)(x) of the Act and that no similar provision is found in subsection 212(5) of the Act.
We trust these comments will be of assistance to you.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch