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: Where a non-resident payer is a partnership (made up of corporations) and is deemed to be a resident of Canada, is the exemption in 212(1)(b)(vii) available
Position: YES
Reasons: Prior positions
XXXXXXXXXX 2005-013462
C. Tremblay, CMA
(613) 957-2139
July 26, 2005
Dear XXXXXXXXXX:
Re: Subparagraph 212(1)(b)(vii) of the Income Tax Act (the "Act")
This is in reply to your letter of May 31, 2005, requesting our views on the applicability of the withholding tax exemption provided in subparagraph 212(1)(b)(vii) of the Act in respect of interest paid to a non-resident lender in the following circumstances:
? The interest is paid on a loan secured on Canadian real property;
? The borrower is a limited partnership ("Partnership A"), the partners of which are (i) a non-resident corporation, and (ii) another limited partnership ("Partnership B") all of the partners of which are non-resident corporations; and
? The interest is deductible in computing the taxable income earned in Canada of the non-resident corporations that are partners of Partnership A and B, or the amount on which those corporations are liable to pay tax under Part I of the Act.
You ask us to confirm that interest paid to a non-resident lender under an obligation that otherwise satisfies the requirements of the exemption under 212(1)(b)(vii) of the Act will not be disqualified where the payor is a partnership all the members deal at arms length with the lender and are either non-resident corporations to which paragraph 212(13)(f) of the Act would apply and/or other partnerships, all of the members of which are non-resident corporations to which 212(13)(f) of the Act would apply.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following general comments.
Generally, payments by a non-resident payor to a non-resident payee may be subject to Canadian income tax if the payor is deemed to be a resident of Canada for the purposes of section 212 or Part XIII of the Act and where the amount is deductible from a source in Canada under Part I of the Act. Certain provisions as you discuss include subsections 212(13), 212(13.1) and 212(13.2) of the Act.
In our opinion, where the provisions of paragraph 212(13)(f) of the Act or subsection 212(13.2) of the Act are applicable in respect of a particular payment such that a non-resident payer of interest is deemed to be a resident of Canada and the payer is a corporation or a partnership, where all of its members are non-resident corporations or another partnership where all of its members are non-resident corporations to which 212(13)(f) of the Act would apply, interest payable in those circumstances will represent "interest payable by a corporation resident in Canada" for the purposes of subparagraph 212(1)(b)(vii) of the Act. Accordingly, if all the other requirements of subparagraph 212(1)(b)(vii) of the Act are met, including, among other things, that all non-resident corporations deal at arm's length with the lender, in our view, such interest will be exempt from withholding Part XIII tax.
We trust our comments are of assistance. However, as stated in paragraph 22 of Information Circular 70-6R5, this opinion is not a ruling and consequently, is not binding on the Canada Revenue Agency in respect of any particular situation.
Yours truly,
Steve Tevlin
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Planning Branch
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