Tax Treaty Case: Velcro Canada Inc. v. The Queen, 2012 TCC 57

By Robert Robillard - 12 January 2015

This blogpost originally appeared on

In Velcro Canada Inc. v. The Queen, 2012 TCC 57 (CanLII):

“[1] Velcro Canada Inc. (“VCI”) was in the business of manufacturing and selling fastening products mainly for the auto industry. VCI paid royalties under a License Agreement to Velcro Industries BV (“VIBV”), previously a resident of the Netherlands, for the use of Velcro Brands Technology. In 1995, VIBV became a resident of the Netherlands Antilles and in October, 1995 assigned the License Agreement to Velcro Holdings BV (“VHBV”), a subsidiary resident of the Netherlands. Canada does not have a tax treaty with Netherlands Antilles. Between 1996 and 2004, VCI paid royalties to VHBV which in turn paid approximately 90% of that amount over to VIBV. Any royalties paid by VCI to VIBV would be subject to a withholding tax of 25%. Canada does have a tax treaty with the Netherlands and under that treaty, VCI withheld and remitted a reduced rate of tax of 10% of the royalties paid to VHBV for the 1996 to 1998 taxation years and nil for 1999 and subsequent taxation years. VHBV is of the view that it is the beneficial owner of the royalties, the Respondent has the contra view that VIBV is the beneficial owner, and VCI therefore should have withheld and remitted a tax of 25% of the royalties paid to VHBV, as required by the Canada-Netherlands Convention (“Convention”).



[17] Was VHBV the beneficial owner of the royalties from VCI from 1996 through to 2004 and if so, therefore entitled to a reduced withholding rate under the convention?
Position of the Parties:

[18] Position of the Appellant:

The Appellant takes the position that VHBV was the beneficial owner of the royalties from VCI for 1996 through 2004 and as such is entitled to the reduced rate of withholding tax under the convention.

The position of the Appellant is based upon:

1. The test of “beneficial owner” from Prévost Car Inc. v. R., 2008 TCC 231 (CanLII), affirmed in 2009 FCA 57 (CanLII)
2. The Convention, Article 3, section 2;
Income Tax Convention Interpretation Act, section 3;
The Tax Court of Canada’s decision in Prévost, paragraphs 95 and 100, and paragraphs 14 and 15 from the Federal Court of Appeal’s decision upholding Prévost:
3. The application of the definition of “beneficial owner” from Prévost in terms of

– “possession”
– “use”
– “control”
– “risk”

4. The lack of existence of evidence of an agency or nominee relationship or that VHBV is a conduit.

[19] Position of the Respondent:

The Respondent takes the position that VIBV rather than VHBV is the beneficial owner of the royalties from VCI between 1996 and 2004, and therefore VHBV is not entitled to the reduced rate under the Convention. The Respondent alleges that the assessments are correct in relation to VCI for failing to withhold and remit the withholding tax of 25% of royalties paid to VHBV under section 12 of the Act since VHBV was not the beneficial owner of the royalties paid to it by VCI.

[20] The position of the Respondent is based upon three arguments:

1. VHBV does not beneficially own the royalties;
2. VHBV is an agent or conduit;
3. VHBV did not exercise the “incidences of ownership” as required by Prévost, supra.”

Drawing on Prevost Car Inc. v. The Queen, 2008 TCC 231 [BLOG], the Black’s Law Dictionary and the Canadian Oxford Dictionary to define various terms, and the facts of the case, the appeal was allowed.

To see the full tax treaty case click here. Aussi disponible en français ici.

Velcro Canada Inc. v. The Queen, 2012 TCC 57 (CanLII)

Velcro Canada Inc. c. La Reine, 2012 CCI 57 (CanLII)

Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard “at”

RBRT Inc. is all about transfer pricing. We specialize in transfer pricing, tax treaties and other international tax matters. Our services include transfer pricing documentation (transfer pricing policies and procedures, BEPS and C-doc), transfer pricing dispute resolution, tax treaty matters including double tax relief, tax treaty-based returns and waivers, advanced pricing agreement (APA), value chain management and TP planning, transfer pricing training. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. and the author are not responsible or liable for any error, omission or inaccuracy in such information. Readers should seek tax advice and tax counsel from RBRT Inc. as required.