21 September 2000 Internal T.I. 2000-0045017 - Residency under income tax convention

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: Whether individual was resident of the Dominican Republic under the Income Tax Convention.

Position: No

Reasons: The individual was only liable to tax on income from sources in the Dominican and this was not the most comprehensive form of taxation in the Dominican Republic

		September 21, 2000

	Sudbury Taxation Services Office	International Section
		Olli Laurikainen
(613) 957-2116
	Attention:  Tiina Wainman
	                International Tax Auditor
		2000-004501

Residency Under the Canada - Dominican Republic Income Tax Convention (the "Convention")

This is in response to your e-mail requesting that we consider the facts of a case involving the residency of an individual under the Convention. You have provided the following information.

The individual under consideration is resident in the Dominican Republic under the Dominican Republic Tax Code ("DR Tax Code") and resident in Canada under the Income Tax Act (the "Act"). The Dominican Republic introduced a new Tax Code effective June 1, 1992, replacing the previous Tax Law of 1962. One basic income tax principle that was modified was broadening the concept of taxable income. The old Code appears to have been based on a territorial concept, i.e., only income generated in the Dominican Republic was subject to taxation. The new Code introduced a more global income concept, taxing some foreign income received by residents of the Dominican Republic.

Specifically, the DR Tax Code states as follows:

Article 269 - Profits of taxpayers domiciled or residing in the Dominican Republic which are subject to taxation

Unless otherwise specified in the present law, all individual and corporate bodies which are residents of or domiciled in the Dominican Republic, and the principal successors of taxpayers with domicile in this country, shall pay the tax on profits obtained from Dominican sources and from sources outside the Dominican Republic arising from investments and financial gains.

Art. 270 - Profits of taxpayers not domiciled or residing in the Dominican Republic which are subject to taxation

Persons not residing or domiciled in the Dominican Republic shall be subject to the tax on their profits from Dominican sources.

Art. 271 - Profits of persons who take up residency which are subject to taxation

Natural persons, whether Dominican or foreign nationals, who take up residency in the Dominican Republic shall not be subject to the tax on their profits from foreign sources until the third year or taxable period after that in which they obtain resident status.

Article 12 - Taxpayer's Domicile

For purposes of taxation, the taxpayer's domicile shall be any one of the following:

(a) His or her normal place of residence;

(b) The place in which his principal activities are carried out;

(c) The place in which the headquarters of his business is located;

(d) The place in which the act giving rise to the tax obligation occurs;

(e) In addition, corporate bodies may consider themselves domiciled in the Dominican Republic when they are incorporated under Dominican laws, when their headquarters or effective place of business is located in this country. A corporation's domicile may be that which is specified in the law under which it is created, or in its articles of association.

Persons who remain is the country for more than 182 days (whether consecutive or cumulative) in a fiscal year are considered residents of the Dominican Republic for tax purposes.

You indicate that the taxpayer who is the subject of your inquiry was taxed under Article 271 of the DR Tax Code during the time he lived in the Dominican Republic. As a result, the taxpayer was never taxed on any income from sources outside the Dominican Republic during his residency in the Dominican Republic under the DR Tax Code. You are of the view that only individuals who are subject to tax in the Dominican Republic under Article 269 of the DR Tax Code and who pay the tax on profits obtained from Dominican sources and from sources outside the Dominican Republic arising from investments and financial gains can be resident in the Dominican Republic for the purposes of the Convention.

Our Comments

We are in agreement with your conclusion that the taxpayer herein question is not a resident of the Dominican Republic under the Convention. In order to be considered "liable to taxation" for the purposes of the Fiscal Domicile article of the Convention and to qualify as a resident of the Dominican Republic thereunder, we are of the view that a person has to be taxed in the Dominican Republic on the most comprehensive basis of taxation in that country. The taxpayer in question is taxable on only his Dominican Republic source income while the most comprehensive basis of taxation in the Dominican Republic is Dominican source income and income from sources outside the Dominican Republic arising from investments and financial gains as provided under Article 269 of the DR Tax Code. Accordingly, the taxpayer is not entitled to relief from Canadian tax pursuant to the Convention.

The taxpayer's circumstances are distinguishable from our position on taxpayers who are considered resident under other income tax conventions notwithstanding that they are only liable to tax in the particular foreign country on a remittance basis. A taxpayer who is liable to tax on a remittance basis is liable to tax on his worldwide income only there is a timing delay in reporting of foreign source income. In other words, all the income of a remittance basis taxpayer is nevertheless taxed. In contrast to this, a taxpayer subject to tax in the Dominican Republic under Article 271 of the DR Tax Code is never taxed on his income arising from investments and financial gains from outside the Dominican Republic.

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

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