2013-0506191E5 copyright photographs

Principal Issues: Whether a royalty fee paid by a Canadian resident to a non-resident for the use of copyright photographs that will be incorporated into a motion picture film or a film, video tape or other reproduction and used in connection with television in Canada is subject to Part XIII tax?

Position: No.

Reasons: The payment is for the use of the copyrighted photograph and not on account or in lieu of payment of, or in satisfaction of, payment for a right in, or to the use of, a motion picture film, or a film, video tape or other means of reproduction for use in connection with television.

Author: Carruthers, Lori
Section: 212(1)(d)(vi); 212(5)

XXXXXXXXXX
                                                                                                                                            2013-050619

November 5, 2014

Dear XXXXXXXXXX:

Re:  Canadian Withholding Tax on Royalties

This is in reply to your letter of September 19, 2013, and further to our email to you of March 3, 2014. In your letter you described a scenario where a Canadian company makes payments to a non-resident person for the use of photographs (the “Payments”). The use of the photographs will include publishing in books, magazines, websites and other purposes.  It is our understanding that the photographs constitute artistic works belonging to the non-resident person and are protected by copyright. This letter will address the circumstances in which the Payments are for the use of the photographs in connection with television in Canada (for example in a backdrop to a film clip used in a television program that is to be used or reproduced in Canada).

XXXXXXXXXX.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

In response to a question that was posed in the context of the Round Table at the 2011 Canadian International Fiscal Association Conference (our file 2011-0404511C6), the CRA stated that:
“The Agency is currently following IT-303SR and at this time, pursuant to subparagraph 212(1)(d)(vi) of the Act, will not be reassessing to tax under Part XIII any payments in respect of a copyright of a literary, dramatic, musical or artistic work (unless it is payment that falls under subsection 212(5) of the Act).”   

This remains our assessing position and, therefore, if our understanding of the Payments as set out above is correct, unless the Payments fall into subsection 212(5) of the Act, the Payments would be exempt from withholding tax under Part XIII of the Act.

Subsection 212(5) of the Act reads as follows:

“Every non-resident person shall pay an income tax of 25% on every amount that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit, to the non-resident person as, on account or in lieu of payment of, or in satisfaction of, payment for a right in or to the use of
 (a) a motion picture film, or
 (b) a film, video tape or other means of reproduction for use in connection with television (other than solely in connection with and as part of a news program produced in Canada),
that has been, or is to be, used or reproduced in Canada to the extent that the amount relates to that use or reproduction.”

For ease of reference, hereafter the phrase “a film, video tape or other means of reproduction for use in connection with television” as they appear in 212(5)(b) above, will be referred to as Television Product. In the circumstances of the Payments described above, the Canadian company would not be paying an amount to the non-resident person for a right in, or to the use of, a motion picture film or Television Product. Instead, the company would be paying the non-resident person for the right to use the photographs which would be incorporated into Television Product. As such, in our view, subsection 212(5) would not apply to the Payments.

Given our view regarding the non-application of subsection 212(5) of the Act to the Payments, it is not necessary for us to issue additional guidance on the application of the Convention.

We trust that these comments will be of assistance.

Yours truly,

Lori M. Carruthers CPA, CA
International Section III
International Division
Income Tax Rulings Directorate
Legislative Policy Regulatory Affairs Branch

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