A U.S. company (PepsiCo) entered into an “exclusive bottling appointment” (“EBA”) with an independent Australian bottling company (the “Bottler”). PepsiCo agreed in the EBA to sell, or cause a related entity to sell, beverage concentrate to the Bottler, for bottling and sale, and granted the Bottler the right to use the Pepsi and Mountain Dew trademarks in this regard. In fact, the concentrate was sold by an Australian company in the PepsiCo group (the “Seller“) to the Bottler. There was a similar arrangement for the licensed bottling and sale by the Bottler of Gatorade pursuant to an EBA with another U.S. company in the Pepsi group (“SVC”).

Perram and Jackman JJ found that, since as a matter of contractual interpretation, all of the amounts paid by the Bottler to the Seller were consideration for the sold concentrate, none of such payments could be treated as a trademark royalty that was subject to Australian withholding tax. Furthermore, none of the concentrate selling price was owed to either US company, so that such payments were not derived by a non-resident of Australia. Accordingly, the Commissioner’s assessment of Australian withholding tax on a portion of the consideration was reversed. These conclusions arose under the domestic withholding tax provision, so that no reference was required to the terms of the Australia-US tax treaty.

Neal Armstrong. Summaries of PepsiCo, Inc v Commissioner of Taxation [2024] FCAFC 86 under Treaties – Income Tax Conventions – Art. 12.

This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.

Regarding the application of Part XIII to a non-resident trust that is deemed to be resident in Canada pursuant to s. 94 and which owns a Canadian rental property, CRA indicated that such trust is not subject to Part XIII tax on amounts paid or credited to it, but is not considered to be resident in Canada for the purposes of determining the liability of a person other than the trust to withhold and remit under s. 215 – so that there is still a requirement for the Canadian tenant(s) to withhold and remit Part XIII tax on the rent paid by them. Per s. 94(3)(g), to the extent that the amount on which the Part XIII tax is paid has been included in computing the trust’s income, the withholding amount is deemed to have been paid on account of the trust tax under Part I for the particular taxation year.

Neal Armstrong. Summaries of 4 June 2024 STEP Roundtable, Q.13 under s. 94(3)(a)(viii) and s. 94(3)(a)(ii).

A Canadian resident who was not a U.S. citizen was subject on death to U.S. estate tax on U.S. situs property, namely, US real property and shares of a U.S. public corporation – and also realized a gain pursuant to ITA s. 70(5). Could the executor claim a credit in Canada respecting the U.S. estate tax paid where:

(i) the value of the deceased’s entire gross estate was equal to, or lower than, U.S. $1.2 million; or

(ii) such value exceeded U.S. $1.2 million?

CRA indicated that in the first scenario, the executor could claim a tax credit in accordance with Art XXIX-B(6)(a)(i) of the Canada-US treaty for the US estate tax paid on the US realty against the Canadian federal tax otherwise payable on the gain from the deemed disposition of the US realty. In particular, such gain was deemed to arise in the US, so that Art XXIX-B(6)(a)(i) could be accessed. Not so for the gain on the US shares.

Regarding the second scenario, the executor could claim a credit also in relation to the gain from the deemed disposition of the US shares against the Canadian capital gains tax, given that Art XXIX-B(6)(a)(ii) referenced any income, profits or gains of the individual from property situated in the U.S. - and the postamble to Art. XXIX-B(6) stated that property is situated within the U.S. if it is so treated for U.S. estate tax purposes.

Neal Armstrong. Summary of 4 June 2024 STEP Roundtable, Q.11 under Treaties – Income Tax Conventions – Art. 29B.