CRA Comments On Bundled Cross-Border License Fee

Subparagraph 212(1)(d)(vi) of the Income Tax Act (Canada) exempts non-residents of Canada from non-resident withholding tax on Canadian royalty payments received in respect of a copyright for the production or reproduction of any literary, dramatic, musical or artistic work. In a recently released technical interpretation (2011–0427181E5, dated August 23, 2012), the Canada Revenue Agency (CRA) was asked whether a non-resident corporation receiving a bundled license fee payment in respect of custom computer software from a Canadian resident would be subject to withholding tax.

The bundled license fee consisted of:

• a payment for the right to sublicense the right to download and use custom computer software by end-users in Canada;