3 August 2004 External T.I. 2003-0051251E5 - Irish Company - Investment Undertakings

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.

Principal Issues: Whether an Investment Undertaking company is entitled to treaty benefits

Position: No, under the new treaty

Reasons: See below

XXXXXXXXXX 2003-005125
Fouad Daaboul
August 3, 2004

Dear XXXXXXXXXX:

Re: The Canada-Ireland Income Tax Agreement Act , 1967, ("Irish Treaty")

We are writing in reply to your letter dated November 25, 2003, which requested our opinion as to whether a corporation registered as an Undertaking for Collective Investment in Transferable Securities ("UCITS") in Ireland, that has received a certificate letter confirming its status as resident in Ireland for income tax purposes, is entitled to the Irish Treaty benefits.

Our comments

We understand that Chapter 1A and Schedule 2B of the Taxes Consolidation Act, 1997, ("TC" Act), which were introduced by section 58 of the Finance Act, 2000, provides a new regime for the taxation of collective funds categorized as "Investment Undertakings". According to section 739B of the TC Act, "Investment Undertaking" is the name given to the investment vehicle that includes a collective investment vehicle set up under the European Communities UCITS Regulations, 1989. Under section 739C of the TC Act, an Investment Undertaking will not be chargeable to tax otherwise than under Chapter 1A. The tax is levied on the Investment Undertaking, and is recoverable from a unit holder, on the happening of a "Chargeable Event" to the extent that the fund has an Irish resident or an ordinary resident unit holder, or the unit holder is referred to in subsections 739D(6), (7), (9), and (9A), including pension schemes, another Investment Undertakings, and charities. Section 739G of the TC Act provides that, even if a gain would be treated as arising to an Investment Undertaking in respect of a resident unit holder, the gain shall not be a gain of the investment undertaking, but rather the amount of the gain is treated as a chargeable gain accruing to the unit holder.

Paragraph 1(e) of Article II of the Irish Treaty provides that:

The terms "resident of Ireland" and "resident of Canada" mean respectively any person who is resident in Ireland for the purposes of Irish tax (...); a company shall be regarded as resident in Ireland if its business is managed and controlled in Ireland (...). Provided that nothing in this paragraph shall affect any provisions of the law of Ireland regarding the imposition of corporation profits tax in the case of a company incorporated in Ireland and not managed and controlled in Canada.

In this regard, the term "person" is defined in paragraph 1(c) of Article II of the Irish Treaty as including "any body of persons, corporate or not corporate". The term "company" in defined in paragraph 1(d) of Article II of the Irish Treaty to include "any body corporate".

In the situation under discussion, it appears to us that a company resident in Ireland for Irish income tax purposes that is authorized under the UCITS Regulations is probably a resident of Ireland for purposes of the Irish Treaty, and the Irish Treaty would thus apply to it.

Under the new income tax agreement between Canada and Ireland (the "New Irish Treaty"), signed on October 8, 2003 but not yet in force, paragraph 1 of Article 4 - Residence - states that: "For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of that person's domicile, residence, place of management, place of incorporation or any other criterion of a similar nature (...). This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State."

The Supreme Court of Canada examined the meaning of the term "liable to tax" in Crown Forest Industries Ltd. v. The Queen, 95 DTC 5389 (S.C.C.). In that decision, at page 5395, the Supreme Court held that the term "liable to tax" in the Canada-U.S. Income Tax Convention (1980) generally requires that a person be subject to as comprehensive a tax liability as is imposed by a state before that person will be considered to be a resident of that state for purposes of a tax treaty. We have already opined that the test enunciated by the Supreme Court would apply to the U.S. Convention and, as a result, any person would only be granted the New Irish Treaty benefits if it were subject to comprehensive taxation in Ireland and therefore was a resident of Ireland for treaty purposes.

Since a corporation, such as the one described in the opening paragraph above, is not subject to tax in Ireland, it would not be a resident of Ireland for purposes of the New Irish Treaty and, consequently, the New Irish Treaty would not apply to it.

We trust our comments will be of assistance.

Yours truly,

Alain Godin
for Director
International and trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch

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