28 December 2000 External T.I. 2000-0003915 - Article XXVI A of Canada-US Tax Treaty

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Would the CCRA interpret paragraphs 4, 8 and 9 of Article XXVI A of the Canada-U.S. Income Tax Convention as creating an obligation the collection of which the CCRA would enforce

Position: Yes, provided that the revenue claim has been established by the U.S. and Canada has accepted the request

Reasons: Interpretation of the law

XXXXXXXXXX 2000-000391
S. Leung
Attention: XXXXXXXXXX

December 28, 2000

Dear Sirs:

Re: Article XXVI A of the Canada-United States Income Tax Convention

We are writing in reply to your letter of January 23, 2000 in which you inquired whether, with respect to the hypothetical situation outlined in your letter, the Canada Customs and Revenue Agency (the "CCRA") interprets paragraphs 4, 8 and 9 of Article XXVI A of the Canada-United States Income Tax Convention (the "Convention") as creating an obligation the collection of which the CCRA will enforce.

The Hypothetical Situation

A U.S. citizen resident in Canada either had filed all required U.S. tax returns and paid all U.S. income taxes up to the date of death or had not filed the required U.S. income tax returns prior to death during the years the individual was resident in Canada. On death, the executors distributed all the assets without payment of any U.S. estate taxes or any U.S. income taxes owing for those years prior to death.

Our Comments

Paragraph 4 of Article XXVI A of the Convention states:

"Where an application for collection of a revenue claim in respect of a taxpayer is accepted ... by Canada, the revenue claim shall be treated by Canada as an amount payable under the Income Tax Act, the collection of which is not subject to any restriction."

Paragraph 8 states:

"No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that

(a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and

(b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in the requested State."

Paragraph 9 states:

"Notwithstanding the provisions of Article II (Taxes Covered), the provisions of this Article shall apply to all categories of taxes collected by or on behalf of the Government of a Contracting State."

In the situation outlined in your letter, it is not clear whether the revenue claim has been finally determined by the U.S. As you may be aware, Canada would take on the responsibility of collecting the revenue claim only if (i) such revenue claim has been finally determined by the U.S. within the meaning of paragraph 2 of Article XXVI A of the Convention and (ii) the application made by the U.S. for assistance in the collection of such revenue claim contains a certification by the competent authority of the U.S. stating that under U.S. laws such revenue claim has been finally determined.

Provided that the conditions contained in paragraph 2 of Article XXVI A of the Convention as discussed above are met and, subject to paragraph 8 of that Article, Canada has accepted the request by the U.S. in collecting the revenue claim, Canada will be obliged under paragraph 4 of that Article to collect such revenue claim as if the revenue claim were an amount payable under the Income Tax Act the collection of which is not subject to any restriction.

It should be noted that Canada would also collect interest and penalty on behalf of the U.S. in respect of tax owing because pursuant to paragraph 1 of Article XXVI A of the Convention the definition of "revenue claim" includes such interest and penalty.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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