1 February 2002 External T.I. 2001-0078205 - Article II, Canada-Argentina 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 CCRA.

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

Principal Issues: whether exclusion in subparagraph 3(b) of Article 11 of the Canada - Argentine Tax Convention is applicable where the payer of the interest is not the final user of the purchased machinery

Position: Yes

Reasons: wording of subparagraph does not require this condition

XXXXXXXXXX 2001-007820
D. Yuen
February 1, 2002

Dear Sir:

Re: Technical Interpretation Request
Article 11 of the Canada-Argentina
Tax Convention (the "Convention")

We are writing in response to your facsimile of March 8, 2001, wherein you requested our opinion regarding subparagraph 3(d) of Article 11 of the Convention in a situation where "the payer of the interest is not the final user of the machinery or equipment, but an intermediary which has an exclusive representation contract with the non-resident exporter." You have inquired what our position would be if the interest arose in Canada.

Our Comments

For the purposes of our reply we have assumed the following:

1. the intermediary and final user are resident in Canada;

2. the intermediary does not have in Argentina, a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base;

3. the indebtedness in respect of which the interest is paid arose as a consequence of the sale on credit by a resident of Argentina of the machinery or equipment; and

4. the intermediary and the final user are not related to the recipient of the interest.

The only requirements for the exclusion described in subparagraph 3(d) of Article 11 of the Convention are that the interest arising in one contracting state must be beneficially owned by a resident of the other contracting state and the interest must be paid with respect to indebtedness that arose as a consequence of a sale on credit by a resident of that other contracting state of industrial machinery or equipment. There is no requirement that the payer of the interest be the final user of the equipment. It is therefore our view that the exclusion described in subparagraph 3(d) of Article 11 of the Convention will apply in the above situation where the payer of the interest in respect of the indebtedness is not the final user of the machinery or equipment to which the indebtedness relates.

Yours truly,

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