The taxpayer paid royalties under a sub-licensing agreement with an affiliated Netherlands corporation ("VHBV") which, in turn, had been licensed the intellectual property by the holder, which was VHBV's Netherlands parent ("VIBV"). Under the licensing agreement, VHBV paid 90% of the royalty fees earned by it from the taxpayer to VIBV.
After finding that VHBV was, under Article 12 of the Canada-Netherlands Convention, the "beneficial owner" of the royalties paid to it, Rossiter A.C.J. rejected the Minister's further argument that VHBV collected the royalty fees as an agent of VIBV. Evidence showed that, legally and practically, VHBV had considerable discretion in how to spend its share of the royalties and when to send VIBV's share. Moreover, there was no evidence that VHBV had the power to alter VIBV's legal position in any respect.