| Author: G. Middleton | |
| May 1992 |
BD de Montreal--Conference avec l'ICCA
Question - 21(a)
What is the Department's position with respect to royalties paid by a Canadian resident to a U.S. resident for the right to distribute videocassettes which will be used for "private (home) use"? No portion of the royalties is paid in respect of the production or reproduction (i.e. the making of copies) of the videocassettes.
Department's Position
This matter is presently under study. Furthermore, it is becoming quite apparent that actual agreements will have to be examined in detail before a position can be taken even where a distributor has the right to produce or reproduce copies of videocassettes.
BD de Montreal--Conference avec l'ICCA
Question - 21(b)
(a) Are the rents and royalties paid by airline companies, teaching establishments and military bases to U.S. residents for the right to show (that is, the right to use) videocassettes to their passengers, students or servicemen, respectively, subject to Part XIII tax?
(b) Does the expression "private (home) use" include the showing of the videocassettes in such situations?
Department's Position
(a) - The payments are subject to Part XIII tax by virtue of subsection 212(5) of the Income Tax Act (the "Act") and such tax is reduced to a rate of 10% pursuant to Article XII of the Canada-U.S. Income Tax Convention (the "U.S. Convention").
(b) The expression "private (home) use" is mentioned in the U.S. Technical Explanation Notes in the commentary for paragraph 3 of Article XII of the U.S. Convention. The showing of videocassettes by airline companies, teaching establishments and military bases to their passengers, students or servicemen, respectively, cannot be said to be for "private (home) use". Even if such use was considered to be "private (home) use", the mere showing of a videocassette does not constitute "production or reproduction" (i.e. the making of copies). Thus, the payments for the mere showing of a videocassette are not exempt from withholding tax pursuant to paragraph 3 of Article XII of the U.S. Convention.
Author: G. MiddletonMay 1992