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 entity is entitled to treaty benefits
Position: See below
Reasons: See below
XXXXXXXXXX 2004-006662
Fouad Daaboul
August 6, 2004
Dear XXXXXXXXXX:
Re: The Canada-Ireland Income Tax Agreement Act , 1967, ("Agreement")
This is in reply to your letter of March 5, 2004, wherein you requested our views on whether the Agreement would apply to the entities described below (the "Entities").
Facts
The Entities in respect of which you are seeking our opinion are briefly described below. For each Entity, you have submitted with your request a confirmation letter issued by the Office of the Revenue Commissioners of Ireland stating that the Entity :
"... is an investment undertaking which, under Irish law, is regarded as resident in Ireland for income tax purposes and thereby subject to Irish tax legislation.
An investment undertaking is required to account for Irish tax in respect of profits and gains other than those which relate to shareholders who are neither resident nor ordinarily resident in Ireland, where such shareholders make approved declarations to that effect."
(i) XXXXXXXXXX (unit trust)
This Entity is an open-ended umbrella unit trust established on XXXXXXXXXX as an Undertaking for Collective Investment in Transferable Securities ("UCITS") pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 (the "UCITS Regulations"). Its rules are set out in the trust deed, which is binding upon the trustee, the manager and all the unit holders of the Entity.
You mention in your request that the Entity qualifies as an investment undertaking as defined in Section 739B of the Taxes Consolidation Act, 1997, (the "TC Act") and as such is not subject to Irish tax on its gains or income. Unit holders will be taxable in respect of certain defined chargeable events, such as distribution or dividend payments, disposals, redemptions and cancellations, but only to the extent that they are not exempt Irish residents, that they are residents of Ireland and that the appropriate declarations are in place.
(ii) XXXXXXXXXX (investment company)
This Entity was incorporated on XXXXXXXXXX under the laws of Ireland as an
open-ended umbrella type investment company with variable capital and limited liability as authorized by the Central Bank pursuant to the UCITS Regulations. You mention that under current Irish law and practice, the Entity is resident in Ireland for tax purposes, where its central management and control is exercised. It qualifies as an investment undertaking, as defined in section 739B of the TC Act, and as such is not chargeable to Irish tax on its relevant income or relevant gains.
(iii) XXXXXXXXXX (limited partnership)
This Entity was incorporated on XXXXXXXXXX under the laws of Ireland as an
open-ended investment company with variable capital and limited liability. The Entity has been advised by way of a certificate issued by the Irish Minister for Finance that it will be a specified collective investment undertaking and, as such, that it will not be liable to any Irish corporation tax on its income or capital gains. The Entity will be regarded as resident in Ireland for tax purposes since the central management and control of its business is exercised in Ireland.
As explained in Information Circular 70-6R5, it is not the Directorate's practice to comment on the tax consequences applicable to a specific taxpayer in particular circumstances, except in the context of an advance income tax ruling. However, we are prepared to offer the following general comments, which we hope will assist you.
Paragraph 1(e) of Article II of the Agreement provides that :
"The terms "resident of Ireland" [...] mean [...] any person who is resident in Ireland for the purposes of Irish tax and not resident in Canada for the purposes of Canadian 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 Agreement as including "any body of persons, corporate or not corporate". The term "company" is defined in paragraph 1(d) of Article II of the Agreement to include "any body corporate".
However, a new income tax agreement between Canada and Ireland was signed on October 8, 2003, (the "New Agreement"). Although not yet in force, the New Agreement will eventually supersede the Agreement and its application to the Entities should therefore be considered. The new definition of a "resident" is found in paragraph 1 of Article 4 - Residence - of the New Agreement, which states:
"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 and also includes that State or a political subdivision or local authority thereof or any agency or instrumentality of any such State, subdivision or authority. 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 expression "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 expression "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 being considered to be a resident of that state for purposes of the tax treaty. It is our view that the test enunciated by the Supreme Court in this case would also apply in respect of the residence test provided in the Agreement with respect to persons other than companies (see document 2003-0032781). As a result, an Entity other than a company would only be granted the benefits of the Agreement or the New Agreement if it were subject to comprehensive taxation in Ireland (according to the information provided, neither of the Entities would appear to meet that test). As for an Entity which is a company, it would qualify as a resident of Ireland under the Agreement provided that its business is managed and controlled in Ireland, and as a resident of Ireland under the New Agreement provided it is subject to comprehensive taxation in Ireland.
We trust our comments will be of assistance.
Yours truly,
Eric Allard-Pouliot
Acting Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
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