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: Interest and dividend derived by certain qualifying U.S. pension funds are exempt from Canadian non-resident withholding tax pursuant to paragraph 2 of Article XXI. Are the words "derived by" broad enough to make the exemption available to a qualifying U.S. pension fund that is a partner in a partnership whose only assets are shares and debt of Canadian issuers?
Position: We cannot provide a definitive answer. We would have to consider whether paragraph 3 is applicable to a particular situation. However, we can provide the following position: if the partnership is not taxed as a separate entity in either country (Canada and U.S.), it is our view that we will look-through to the members in determining whether paragraphs 2 and 3 of Article XXI of the Treaty is applicable in respect of that member and in determining whether a particular member is related to the person from which the income is derived for the purpose of paragraph 3 of Article XXI of the Treaty.
Reasons: If the partnership is not taxed as a separate entity in either country, the partnership should be treated as a conduit for the purposes of the Treaty.
XXXXXXXXXX 2005-014029
Sylvie Labarre, CA
January 18, 2008
Dear Sir:
Re: Article XXI of the Canada-U.S. Income Tax Convention
This is in reply to the letter of June 29, 2005 sent by XXXXXXXXXX in which he requested our views with respect to Article XXI(2) of the Canada-U.S. Income Tax Convention (hereinafter the "Treaty"). We apologize for the delay in responding.
Interest and dividends derived by certain qualifying U.S. pension funds may, in certain circumstances, be exempt from Canadian non-resident withholding tax pursuant to Article XXI of the Treaty.
XXXXXXXXXX believes that the words "derived by" are broad enough to permit the debt or securities, on which the dividends or interests are paid, to be held by the qualifying U.S. pension fund indirectly through a conduit entity such as a partnership. He requested our view on whether the words "derived by" in Article XXI(2) of the Treaty are broad enough to make the exemption provided for in Article XXI(2) of the Treaty available to a qualifying U.S. pension fund that is a partner in a Canadian partnership whose only assets are shares and debt of Canadian issuers provided that the equity does not constitute a controlling interest in the issuer.
Furthermore, XXXXXXXXXX asked whether the answer to Question 21 of the Round Table at the 1996 Corporate Management Tax Conference, which addressed looking through partnerships for purposes of determining whether a person is a related person for purposes of Article XXI(3) of the Treaty, still represents our position.
XXXXXXXXXX 's request may relate to a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5. However, if the situation relates to a completed transaction a request for the views of the Canada Revenue Agency (CRA) must be made to the International Tax Services Office. We can, however, provide the following general comments.
If the partnership is not taxed as a separate entity in either country, it is our view that the partnership should be treated as a conduit for the purposes of the Treaty and that CRA would look-through to the members in determining whether paragraph 2 of Article XXI of the Treaty is applicable in respect of that member.
There is an exclusion in paragraph 3 of Article XXI from the exemption for income that is from carrying on a trade or business or that is from a related person other than a person referred to in paragraph 1 or 2 of Article XXI.
Where a partnership carries on business, the business operations carried on by the partnership are regarded as being carried on by the partners directly, to the extent of the partner's interest in the partnership. That position applies equally to limited partnerships. It is a question of fact whether the activities carried out by a partnership constitute carrying on business. We do not rule out the possibility that a partnership can earn property income. However, after a review of the relevant facts, we may consider in a particular situation where the only activity of the partnership is the investment in shares and debts of various corporations that such activity is a business activity.
Where the investment activities of the partnership constitute carrying on business, the U.S. pension fund's share of dividends and interests would not be exempted by paragraph 2 of Article XXI of the Treaty.
Furthermore, the income would not be exempted in a situation where the income comes from a related person other than a person referred to in paragraph 1 or 2 of Article XXI. For that purpose, as mentioned in the 1996 Round Table, where a person is a member of a partnership, we will look-through to the members in determining whether a particular member is related to the person from which the income is derived.
We trust the above comments will be of some assistance.
Yours truly,
Alain Godin, Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2008
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2008
Email this Content