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From: Canada Revenue Agency

What the "Archived Content" notice means for interpretation bulletins


DATE: September 19, 1985

Know-How and Similar Payments to Non-Residents

Reference: Paragraph 212(1)(d) (also subsections 212(5), (13), (13.1) and (13.2))

Paragraph 2 is revised to read as follows:

2. It should be noted that payments by a non-resident payor to a non-resident payee may be subject to Canadian tax if the payor is deemed by subsection 212(13) or 212(13.2) to be a resident of Canada for the purposes of section 212 or Part XIII. Where a partnership pays or credits an amount (other than a capital expenditure or other non-deductible payment) to a non-resident person, paragraph 212(13.1)(a) deems that partnership to be a person resident in Canada and therefore obligated to withhold tax as required under section 212. In addition, where a resident person pays or credits an amount to a partnership that is not a Canadian partnership because not all of its members are resident in Canada, paragraph 212(13.1)(b) deems that particular partnership to be a non-resident person and therefore subject to tax under section 212.

Paragraph 4 is revised to read as follows:

4. Paragraph 212(1)(d) provides for an income tax of 25% on all amounts paid or credited to a non-resident person as, on account or in lieu of payment of, or in satisfaction of, rent, royalty or a similar payment (other than an incremental resource royalty or an incremental production royalty as defined in subsection 79(1) of the Petroleum and Gas Revenue Tax Act paid or credited after 1981). The types of payments subject to tax under paragraph 212(1)(d) include, but are not limited to, those described in subparagraphs 212(1)(d)(i) to (v) but do not include those described in subparagraphs 212(1)(d)(vi) to (x). The provisions of bilateral tax agreements between Canada and other countries may reduce the rate of this tax or, in some cases, wholly exempt some payments (see 34 and 35 below).

Paragraph 28 is revised to read as follows:

28. Royalties and similar payments in respect of a copyright on a literary, dramatic, musical or artistic work are not subject to withholding tax under paragraph 212(1)(d) by virtue of subparagraph 212(1)(d)(vi). However, as provided by subsection 212(5), payments for a right in or the use of a motion picture film or a film or video tape for use in connection with television that is to be used or reproduced in Canada is subject to a withholding tax of 25% (unless reduced by treaty).

Paragraphs 35 and 36 are replaced by the following:

35. For example, although paragraph 212(1)(d) and subsection 212(5) provide for a withholding tax of 25% on royalties or similar payments, a number of provisions in the Canada-U.S. Income Tax Convention (1980) may affect the taxation of such payments where the beneficial owner of the royalties is a resident of the United States. Article XII of the Canada-United States. Income Tax Convention (1980) limits the rate of withholding tax on such payments to 10% provided that the property or right on which the royalties are paid is not effectively connected with a "permanent establishment" (Article V of the Convention) through which the non-resident beneficial owner carries on a business in Canada or a fixed base in Canada through which the non-resident beneficial owner performs independent personal services. Where the right or property is effectively connected with a permanent establishment or a fixed base in Canada, the royalty income, including that in respect of the production or reproduction of any literary, dramatic, musical or artistic work, is taxed under the provisions of Article VII (business profits) or Article XIV (independent personal services).

The Canada-U.K. Income Tax Convention (1978) provides rules similar to those of the Canada-United States. Income Tax Convention (1980).

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