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: Request for a ruling that payments for the use of an electronic trading system operated by a non-resident will not be subject to withholding under Part XIII of the Income Tax Act.
Position: Ruling granted.
Reasons: The services are being "performed in connection with the sale of property or the negotiation of a contract".
XXXXXXXXXX 2002-015875
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX ("TradeCo")
This is in reply to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer with respect to certain services to be provided to residents of Canada. To the best of your knowledge and that of TradeCo, none of the issues involved in this ruling request:
i. is in an earlier return of TradeCo or a related person;
ii. is being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of TradeCo or a related person;
iii. is under objection by TradeCo or a related person;
iv. is before the courts; or
v. is the subject of a ruling previously considered by the Income Tax Rulings Directorate.
In this letter, references to the "Act" mean the Income Tax Act, R.S.C. 1985 c.1 (5th Supp.), as amended to the date hereof. Unless otherwise stated, statutory references in this letter are to the Act. Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. TradeCo is a limited liability company formed under the laws of XXXXXXXXXX TradeCo is, and at all relevant times will be, a non-resident of Canada for purposes of the Act. TradeCo is wholly owned by XXXXXXXXXX (the "XXXXXXXXXX").
2. XXXXXXXXXX.
3. The XXXXXXXXXX is a global, XXXXXXXXXX distributor of XXXXXXXXXX. The XXXXXXXXXX provides XXXXXXXXXX through its telecommunication and computer network (the "XXXXXXXXXX Service").
4. Canadian customers of the XXXXXXXXXX Service access it using either their own computers or equipment provided by the XXXXXXXXXX. The XXXXXXXXXX Service is provided from mainframe computers located in XXXXXXXXXX through dedicated telephone lines.
Proposed Transactions
5. TradeCo has a right pursuant to a license agreement with the XXXXXXXXXX to operate an XXXXXXXXXX trading system (the "Trading System") through the XXXXXXXXXX Service. The Trading System acts as an electronic bulletin board on which qualified customers of the XXXXXXXXXX Service can post offers to buy and/or sell XXXXXXXXXX (collectively, "XXXXXXXXXX Contracts"). The Trading System also enables qualified customers to respond to these posted offers.
6. Neither TradeCo or the XXXXXXXXXX establishes the form of contract used by their customers to effect the sale of an XXXXXXXXXX Contract. Similarly, neither TradeCo or the XXXXXXXXXX participates in the execution and eventual settlement of a sale by their customers.
7. TradeCo is not an agent for any customer using the Trading System.
8. A resident of Canada must be a customer of the XXXXXXXXXX Service before that person can be eligible to use the Trading System. In order to use the Trading System, a customer of the XXXXXXXXXX Service must also enter into an agreement with the XXXXXXXXXX and TradeCo ("Agreement") specifying the terms of that customer's use of the Trading System. The Agreement is an addendum to that customer's agreement with the XXXXXXXXXX to use the XXXXXXXXXX Service.
9. Under the Agreements, TradeCo earns fees on each completed sale of an XXXXXXXXXX Contract made using the Trading System. When an XXXXXXXXXX Contract is sold, both the buyer and seller are required to pay TradeCo a fee computed by reference to the value of the XXXXXXXXXX Contract. No fee is charged to a customer of the XXXXXXXXXX Service for gaining access to or maintaining access to the Trading System. Similarly, no fee is charged for posting on the Trading System an offer to buy and/or sell an XXXXXXXXXX Contract.
10. TradeCo does not maintain an office or any other permanent establishment in Canada. The Trading System resides on mainframe computers located in XXXXXXXXXX. Software development of the Trading System, management and maintenance of the Trading System, customer help desk support and customer billing and collection are all performed in XXXXXXXXXX. Credit review of customers, and the acceptance of and execution of Agreements are also completed in XXXXXXXXXX.
Purpose of the Proposed Transactions
11. The purpose of the proposed transactions is to enable TradeCo to offer access to the Trading System to customers of the XXXXXXXXXX Service for fees paid to TradeCo pursuant to an Agreement.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, and subject to the comments set out below, our ruling is as follows:
Payments to TradeCo made by a resident of Canada pursuant to an Agreement entered into after the date hereof are not subject to withholding tax under Part XIII of the Act.
This ruling is governed by the general limitations and qualifications set out in Information Circular 70-6R5. It is binding on the Canada Customs and Revenue Agency (the "CCRA") as long as the proposed transactions are completed by XXXXXXXXXX. This ruling is based on the Act in its present form and does not take into account any proposed amendments to the Act that, if enacted, could affect the ruling.
Nothing in this letter should be construed as implying that the CCRA has agreed to or ruled on:
a) Whether TradeCo is carrying on business in Canada for purposes of the Act; or
b) Whether a permanent establishment exists in Canada for purposes of any tax treaty (as defined in subsection 248(1)).
Additionally, nothing in this ruling should be construed as implying that the CCRA has agreed to or reviewed any tax consequences relating to the facts and proposed transactions other than those specifically described herein.
Yours truly,
XXXXXXXXXX
Section Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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© His Majesty the King in Right of Canada, 2002
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© Sa Majesté le Roi du Chef du Canada, 2002
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