Old Wine in New Wineskins'? Indirect Tax Challenges for International Transfers of Intangible Property

• Author: Jim Vincze & M. Craig Robertson
• Pages: 341-371

341

Chapter 14

“Old Wine in New Wineskins”?

Indirect Tax Challenges for

International Transfers of Intangible

Property

jim vincze & m. craig robertson*

If al l countries employed the same rules (and interpreted them in the same

way), there would be no double taxation or unintentional non-taxation. There

would be certainty for business and new markets could be developed safe in

the knowledge that t he universal rules apply. However, the reality is dif ferent.1

A. THE CONVERGENCE OF TECHNOLOGY, COMMERCE, AND

INDIRECT TAX2

1) Introduction

The purpose of this chapter is to identify the points of tension relating to in-

direct ta xation — taxes on t ransactions, consumption, customs duties, and

* The authors wish to express their appreciat ion to Jason Riche and Lisa Zajko for their signif‌icant

effort in the research and writing of this chapter. The discussion herein ref‌lected the legislation,

tax policies, a nd deliberations and public anno uncements as of early January 20 07.

1 OECD Sec retariat, Consumpti on Taxes: The Internat ional Trade in Services a nd Intangibles

(Paris: OECD, 2005).

2 The term “indire ct tax” can cover a broad ran ge of different revenue and regulator y re-The term “ind irect tax” can cover a broad ra nge of different revenue and regul atory re-

gimes; we will res trict our discussion pr imarily to value- added taxes (VAT) and customs

issues. Other ind irect taxes, such as e xcise duties and stamp taxes, a re outside the scope

of this chapter. Wit hin Canada, we will e xamine Canada’s VAT, the Goods & Services

Tax/Harmonized Sa les Tax (GST) provided for under Part IX of t he Excise Tax Act, R.S.C .

1985, c. E-15, as amended [ ETA]. The GST applies at a rate of 6 percent (14 percent in Ne w

Brunswic k, Nova Scotia, and Newfoundl and & Labrador). Prior to 1 July 2006, these r ates

were 7 percent and 15 percent, respe ctively. Five of Canada’s provinces also have a provi ncial

342 jim vincze & m. craig roberts on

compliance obligations — that a Canadian-based enterprise may encounter

when transacting with intangible personal property (IPP) in the globa l en-

vironment, particularly when IPP or intellectu al property (IP) is traded with

a non-resident. We will focus primarily, but not exclusively, on the Cana-

dian experience, looking bot h inside and outside of Canada.

IPP is a broad category and includes a broad bundle of rights. Essen-

tially, IPP is property that is not perceptible to the senses and it generally

represents a right to something. Common examples include customer l ists,

memberships, and r ights under a dist ribution or franchise agreement.3

IP, on the ot her hand, includes more specif‌ical ly recognized categor ies of

property rights, such as copyrights, trade-marks, and patents.4 There can

certainly be overlap, as IPP includes traditional IP.5 IP can be viewed as a

subset of IPP that is more legally identif‌iable and is accorded more specif‌ic

legal treatment.

Indirect taxes — both value-added t axes (VATs) and customs duties — are

concerned with taxing and/or regu lat ing t ransfers bet ween par ties and

across borders. Such taxat ion mechanisms are not new. VATs have existed

retail sale ta x (RST) regime that applie s, in these provinces, in addition to t he GST. RST will

not be the focus of th is discussion. Quebec also appl ies the Quebec Sales Tax (QST), which

is substantia lly harmonized with t he GST, under An Act in respect of t he Quebec Sales Tax,

R.S.Q. c. T-0.1, as amended .

3 Cert ain rights may, however, be considered to be f‌in ancial services for GST pur poses (e.g.,

options and warr ants relating to shares). Financ ial services are given spe cial treatment for

GST purposes and w ill not be discussed here.

4 IP, in general terms, means the ri ghts that arise from intel lectual activit y, typically in the

industrial , scientif‌ic, literar y, and artistic f‌ields. The W IPO Convention Establi shing the

World Intellec tual Property O rganization of 14 July 1967, stated th at

intellectu al property shall i nclude rights relating t o:

– literary, art istic and scientif‌ic works,

– performances of p erforming arti sts, phonograms and broadcasts,

– inventions in all f‌ie lds of human endeavor,

– scientif‌ic dis coveries,

– industrial d esigns,

– trade-marks, se rvice marks and commercia l names and designations,

– protection agai nst unfair competition,

and all other r ights resulting from intel lectual activ ity in the industria l, scientif‌ic, liter-

ary or art istic f‌ields.

WIPO, WIPO Intellec tual Propert y Handbook: Policy, Law and Use, 2d e d., (Geneva: WIPO,

2004).

5 It is not always c lear that the converse is true; t he Canada Revenue Agency (CR A), for

example, has ex pressed the view that the gr ant or assignment of a franchis e agreement will

not, in many cases, b e considered a “supply of IP” for GST purposes becau se the copyright,

trade-mark, or ot her IP elements are only components, not the def‌i ning elements, of the

franchise/dist ribution arrangement.