25 March 2002 External T.I. 2001-0111165 - Article VII(4) U.S. Canada 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 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 Canadian parent corporation performing "executive, managerial or administrative" services for U.S. subsidiary corporation that is the general partner of a US partnership in respect of U.S. subsidiary's management responsibilities would fall within paragraph 4, Article VII of the Canada-U.S. Tax Convention?

Position: Question of fact, likely no.

Reasons: Decision must be made on a case by case basis.

XXXXXXXXXX 	2001-011116
		Suzanie Chua

March 27, 2002

Dear XXXXXXXXXX:

Re: Paragraph 4, Article VII Canada-U.S. Income Tax Convention (the "Treaty")

This is in reply to your letter of November 15, 2001, wherein you requested further clarification of our technical interpretation (Document 2000-004486) to your original request of August 30, 2000.

Briefly, the hypothetical facts you outlined in your August 30, 2000 letter are as follows:

1. A U.S. partnership (the "Partnership") would be established where all of its members are U.S. resident.

2. The Partnership would invest in equity and equity related securities of private and some public companies in the U.S. and Canada.

3. The general partner of the Partnership (the "General Partner") would be a corporation incorporated in the U.S. and this corporation would not have any employees but would subcontract its responsibilities relating to the management of the Partnership, as general partner, to its Canadian parent corporation or a corporation related to its parent ("Canco"). The management services agreement between Canco and the General Partner would say that the General Partner retains Canco to provide services of Canco personnel and such other management services as appropriate to facilitate the ongoing operation of the responsibilities of the General Partner as general partner of the Partnership.

4. In the performance of services as described in the preceding paragraph, Canco will receive an amount equal to the amount which the General Partner would be entitled to receive under the Partnership agreement.

Specifically, you now ask whether services as described above, if such services could all be described as "executive, managerial or administrative" in nature, would fall within paragraph 4, Article VII of the Treaty.

Comments

The situation outlined in your letter appears to involve actual proposed transactions and identifiable taxpayers and, therefore, should be the subject of an advance income tax ruling. Confirmation as to the income tax consequences of proposed transactions will only be given in the context of an advance income tax ruling. The procedures for making a request for an advance income tax ruling are outlined in Information Circular 70-6R4, dated January 29, 2001, issued by Canada Customs and Revenue Agency. We can, however, offer the following general comments.

Our view as stated in Document E2000-0044865 stands. Additionally, in our view, the abovementioned services as described cannot fall within the provision of paragraph 4 of Article VII because the word "mere" in that paragraph suggests something less than described in your hypothetical facts.

We trust these comments will be of assistance.

Yours truly,

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