Recently, the Canada Revenue Agency (CRA) has published a Notice regarding the impact on the Most Favoured Nation (MFN) provision of the Canada–Lithuania Income Tax Convention with respect to certain royalties.
Effective January 1, 2019, the withholding rate described in paragraph 2 of Article 12 of Canada–Lithuania Tax Convention has been eliminated with respect to certain royalties.
The following types of royalties paid or credited on or after 1 January 2019 are therefore exempt from tax in the state in which they arise:
- copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or artistic work (but not including royalties in respect of motion picture films nor royalties in respect of works on film or videotape or other means of reproduction for use in connection with television broadcasting);
- royalties for the use of, or the right to use, any patent or any information concerning industrial, commercial or scientific experience (but not including any such information provided in connection with a rental or franchise agreement).
This change occurs as a result of the MFN provision in paragraph 7 of Article 12 of the Convention and has been confirmed by the Lithuanian Competent Authority.
If tax was withheld on certain types of defined royalties for the time period between 1 January 2019 and 31 December 2020, taxpayers may seek to obtain a refund.
In case of Lithuanian-resident taxpayer:
- Complete form NR7-R, Application for Refund of Part XIII Tax Withheld to apply for a refund of Canadian tax withheld.
- Send the application to: Non-Resident Withholding Section, Canada Revenue Agency, Post Office Box 20000, Station A, Sudbury ON P3A 5C1, CANADA.
In the above case, taxpayers have two years from the end of the calendar year they paid the tax in to apply for the refund.
In case of a Canadian-resident taxpayer:
- Complete Form FR0022 (DAS-2), Claim for Refund of the Tax Withheld at Source to apply for a refund of the Lithuanian tax withheld. To access the form, go to the forms webpage of the Lithuanian State Tax Inspectorate and search for the form using code FR0022.
- If you fill in Part VI of the form, the Canada Revenue Agency must certify your residency. You can get this certification by contacting the appropriate taxpayer services regional correspondence centre. Or, you can leave Part VI blank and submit a Certificate of Residence with your form.
- Send your application to one of the local offices of the Lithuanian State Tax Inspectorate.
A Canadian individual resident can submit this form for the past five years while a Canadian resident entity can submit the form for only the past three years.
