Royalties were payable by Canco to a non-resident for the right to use copyright and trademarks in connection with the design, manufacturing and sale of products in countries in a particular region. Regarding what portion of each royalty payment should be treated as exempted under s. 212(1)(d)(vi) as a copyright royalty, the Directorate stated:
In general, where a contract provides for a payment subject to tax under paragraph 212(1)(d) and for a payment that is not otherwise subject to part XIII tax under the Act, the onus is on the CRA to determine which portion of the payment is subject to tax [citing inter alia Farmparts].
Regarding the allocation under the licence agreement of X% of the payments to copyright and the balance to trademarks, the Directorate stated:
Whether a particular apportionment of the consideration paid is reflective of the actual payments described in the exemption under subparagraph 212(1)(d)(vi) depends namely on the legal nature of what is being provided under the mixed contract, the legal relationships between the parties and the facts of the particular situation including the commercial reality of the parties and the consideration paid in these circumstances. In determining if the apportionment provided under the License Agreement is prima facie reflective of the obligation of the parties under subsection 212(1), consideration could be given, namely, to whether the parties had divergent interests in respect of the apportionment.