Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Dear Sirs:
This is in reply to your letter of February 22, 1985 concerning the following hypothetical situation:
- 1. A. Co. is resident in the U.S.
- 2. B. Co. is resident in Canada and is wholly owned by A. Co.
- 3. A. Co. provides management services to B. Co.
- 4. C. Co., a resident of Canada, acquires all the shares of B. Co. from A. Co. and, at the same time, acquire from A. Co. an outstanding debt receivable from B. Co. in respect of the management services in 3. above.
It is your opinion that, in respect of the acquisition of debt as described in 4, no Part XIII tax is payable.
Our Comments
- 1. The provisions of subsections 214(2), 214(6) or 214(7) of the Act could apply in respect of the acquisition of a debt obligation in the circumstances described. We agree that if the debt is not interest bearing, the provisions of subsection 214(6) would not apply in respect of the transfer or assignment thereof. We also agree that a non-interest bearing trade receivable would not ordinarily be an obligation described in paragraph 214(7)(c) of the Act and its transfer would therefore not normally be s-ubject to the provisions of sub-section 214(7) of the Act; however, depending on the circumstances, its transfer may be subject to the provisions of subsection 214(2) of the Act.
- 2. It is our view that the acquisition of the debt receivable, as described above, would be subject to paragraph 212(1)(a) of the Act (as an amount would be paid "as, on account or in lieu of payment of" a management fee), unless excepted by subsection 212(4) of the Act. However, the provisions of Article VII of the Canada-U.S. Income Tax Convention (1980) would exempt such payment from tax in Canada, except to the extent that the management fee was attributable to a permanent establishment in Canada of -A. Co., on the assumption that the fee was reasonable in the circumstances. To the extent that the fee exceeds that which would have been charged in arm's length circumstances, it would be subject to a tax of 25% pursuant to paragraph 212(1)(a) of the Act.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1985
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1985
Email this Content