24 July 2003 External T.I. 2003-0012325 - CDN - Norway Treaty Art.21 Offshore Rent

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 payments made by a resident of Canada to a resident of Norway for the use of moveable property in Canada (including bareboat rental arrangements) are exempt from Canadian withholding tax under the new Canada-Norway tax treaty

Position: Yes unless the Norwegian resident carries on his rental business activities through a PE in Canada.

XXXXXXXXXX 								S. Chatel
	2003-001232
Attention: XXXXXXXXXX 

July 24, 2003

Dear XXXXXXXXXX:

Re: Canada-Norway Income Tax Convention - Rents from Moveable Property

This is in reply to your letter dated April 4, 2003, and in follow-up to our several discussions (Stalker/XXXXXXXXXX) in respect of rental payments made by a resident of Canada to a resident of Norway for the use of moveable property in offshore activities in Canada (including bareboat rental arrangements). You have asked if such payments are exempt from Canadian tax under the new Canada-Norway Income Tax Convention (the "Convention").

Under Canadian domestic law, rental payments for the use in Canada of any property made by a Canadian resident to the Norwegian resident can be taxed under Part I (pursuant to subsections 2(3) and 115(1) of the Income Tax Act (the "Act")) where the Norwegian resident is carrying on a business in Canada. Where the Norwegian resident does not carry on a business through a permanent establishment in Canada, rental payments made by a Canadian resident would be subject to a 25% withholding tax under Part XIII (pursuant to paragraph 212(1)(d) of the Act) unless the tax is either reduced or eliminated by virtue of the Convention.

Generally, rental payments received by a corporation resident in Norway from a resident of Canada for the use of moveable property fall under Article 7 (Business Profits) of the Convention, unless such payments are covered by another article of the Convention, in particular Article 12 (Royalties) and Article 21 (Offshore Activities). If Article 7 does apply, such payments are exempt from tax in Canada unless the Norwegian resident carries on business in Canada through a permanent establishment. The definition of "royalties" in Article 12 of the Convention does not include rents paid for the use of moveable property and consequently Article 12 does not apply to the payments.

Pursuant to Article 21, a Norwegian resident who carries on activities in Canada in connection with the exploration or exploitation of the seabed and subsoil and their natural resources is deemed to be carrying on a business in Canada through a permanent establishment or fixed base situated therein. We note that this provision only requires that the Norwegian resident carry on activities in connection with the exploration and exploitation of the natural resource of Canada, which in our view is a lower threshold than carrying on a business. However, those activities must be in connection with the exploration or exploitation of the seabed and subsoil and their natural resources. It is our view that the Norwegian resident would not be considered to be carrying on activities in Canada in connection with the exploration or exploitation of the seabed and subsoil and their natural resources in cases where the only activity of the Norwegian resident is to rent moveable property used in offshore activities in Canada. Consequently, the Norwegian resident would not be deemed to be carrying on a business in Canada through a PE under Article 21 in relation to his rental activities.

We hope you will find our comments helpful.

Yours truly,

Jane Stalker
Section Manager
for Division Director
International Section
Income Tax Rulings Directorate
Policy and Legislation Branch
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