The CRA Changes the Channel on Broadcast Rights

Question 13 of the CRA round table at the 2022 CTF annual conference considered the applicability of Canadian withholding tax to payments made by a Canadian broadcaster to acquire from a non-resident the rights to broadcast live sporting or artistic events in Canada (“broadcast rights payments”). This question was very timely, coinciding as it did with the broadcasting of the FIFA World Cup in Qatar.

The CRA was asked whether it was still of the view that for the purposes of the withholding tax exception in subparagraph 212(1)(d)(vi), broadcast rights payments would be considered to be in respect of a “copyright in respect of the production or reproduction of any literary, dramatic, musical or artistic work.” The question was framed in light of the 2012 SCC decision in Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada (2012 SCC 34) (“ESA”).

Relying on the ESA case, the CRA reversed its previous view—expressed at the 2011 IFA conference (CRA document no. 2011-0404511C6, May 3, 2011)—that the exception in subparagraph 212(1)(d)(vi) applied to all payments for copyright in respect of literary, dramatic, musical, or artistic works, including broadcast rights payments.

The ESA case considered whether the delivery through Internet download of video games containing copyrighted music constituted the communication of literary, dramatic, musical, or artistic work to the public by telecommunication for the purposes of section 3(1)(f) of the Copyright Act (RSC 1985, c. C-42). The appellant claimed that the download was not a communication that entitled members of SOCAN (the Society of Composers, Authors and Music Publishers of Canada) to compensation in accordance with an approved tariff. In a 5-4 split decision, the SCC sided with the appellant.

The SCC concluded in ESA that the Copyright Act—and, more particularly, the introductory paragraph of the definition of “copyright” in section 3(1)—encompasses three separate core rights: (1) the right to perform a work in public; (2) the right to produce or reproduce a work in any material form; and (3) the right to publish an unpublished work. According to the SCC majority, the rights that are listed in paragraphs (a) to (j) of section 3(1) are merely illustrative, not self-standing. The SCC specified that the right to communicate a work to the public by telecommunication, as described in section 3(1)(f) of the copyright definition, is connected to the core right to perform a work and not to the right to reproduce permanent copies of the work.

ESA, read in conjunction with one of its companion cases, Rogers Communications Inc. v. Society of Composers, Authors and Music Publishers of Canada (2012 SCC 35) (“Rogers”), seems to stand for the proposition that downloads do not engage performance rights, while streams do. (The SCC recently confirmed that ESA and Rogers remain good law: see Society of Composers, Authors and Music Publishers of Canada v. Entertainment Software Association, 2022 SCC 30.)

The question therefore is whether live broadcasting should qualify as a performance or a reproduction. Both the majority and the minority of the SCC indicated that live radio broadcasting was similar to streaming and, therefore, to performing (ESA, at paragraphs 16-27 [Abella and Moldaver JJ] and paragraphs 94-100 [Rothstein J]).

On the basis of these SCC cases, the CRA concluded that broadcast rights payments are consideration for a right to which section 3(1)(f) of the copyright definition applies—that is, the right to communicate work to the public by telecommunication. According to the CRA, such a right is linked to the core right to perform a work (as established in ESA), and broadcast rights payments cannot be viewed as payments made “in respect of the ‘production or reproduction’ of copyrighted work and as such, they are not governed by the exception in subparagraph 212(1)(d)(vi).”

The CRA’s new position regarding broadcast rights payments raises a number of concerns. First, the retroactive reversal of a decade-old administrative position raises an obvious fairness concern, and it is hoped that the CRA will adapt its audit and assessment practice to take this into account.

Second, the CRA’s position and, to a certain extent, the positions set out in ESA and Rogers lack factual specificity: the technological aspects of so-called broadcasting are not discussed. Typically, the first step in the broadcasting of a live event is the capturing and mixing of audio and video and the recording thereof by the event organizer (for example, FIFA in respect of the World Cup). The filmed live event is copyrighted material that is, typically, uplinked to a satellite and then pulled down by the Canadian broadcaster/TV station, which has a limited right not only to reproduce this material but also to produce a program with its own overlay of commentary. Finally, although modern technology allows all of these processes to occur very quickly, the broadcasting of a live event is rarely if ever a direct instantaneous transmission of an event—the program is never communicated to the public (whether through a cable distributor, Internet live streaming, or another means) in real time; there is a lag for accommodating edits and controlling content.

Third, the CRA’s view does not reflect the variety of rights that may be at play in a typical broadcasting agreement between a Canadian broadcaster and the non-resident organizer of an event. Arguably, such arrangements relate in an important way to the production and reproduction of copyrighted work and, accordingly, could be covered at least in part by the withholding tax exemption in subparagraph 212(1)(d)(vi).

In light of the significant concerns and uncertainty raised by the CRA’s new position on broadcast rights payments, the Department of Finance should specifically consider extending the exemption in subparagraph 212(1)(d)(vi) for broadcast rights payments retroactively to 2012. This would be consistent with Canada’s legislative and treaty policy of providing valuable foreign-owned copyrighted material to Canadian users free of withholding tax.

Michael Kandev and Marie-Emmanuelle Vaillancourt
Davies Ward Phillips & Vineberg LLP, Montreal