19 September 2008 External T.I. 2005-0149771E5 - Foreign Affiliates

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 a Barbados qualifying insurance company (QIC) is resident in Barbados for the purposes of Part LIX of the Income Tax Regulations

Position: Yes

Reasons: The QIC in question is liable to tax in Barbados on its worldwide income and would be described in either paragraph 5907(11.2)(a) or (c) of the Regulations

								2005-014977
XXXXXXXXXX 							D. Boychuk
(613) 948-5274
September 19, 2008

Dear XXXXXXXXXX :

Re: Barbados Qualifying Insurance Companies

This is in response to your letter of September 2, 2005. In that letter, you asked us if a Barbados "qualifying insurance company" that is a controlled foreign affiliate of a Canadian resident corporation would be considered to be resident in Barbados for the purposes of Part LIX of the Income Tax Regulations ("Regulations"). We apologize for the delay in our reply.

A Barbados qualifying insurance company (QIC) is a company that is registered under the Barbados Insurance Act to provide insurance for property and casualty risks in circumstances where:

(a) at least 90% of its gross revenue from insurance premiums originates outside the Caribbean Single Market (CSM);
(b) at least 90% of all of the risks insured by it originate outside the CSM; and
(c) the Supervisor of Insurance in Barbados has issued a certificate of qualification to the company.

In your letter you asked us to assume that the QIC carries on business in Barbados pursuant to a valid certificate of qualification and that the central management and control of the QIC is located in Barbados. It is our understanding that, in these circumstances, the QIC would be resident in Barbados for income tax purposes and would be subject to income tax in that country on its worldwide income at the same rate as other Barbados companies. However, the QIC would be entitled to a foreign currency earnings credit to a maximum of 93% of its Barbados income tax liability in respect of insurance premiums that originate from the insurance of property and casualty risks outside the CSM. A QIC that is entitled to a full foreign currency earnings credit is subject to an overall effective income tax rate of 1.75% on its taxable income arising from the insurance of property and casualty risks outside the CSM.

The situation outlined in your letter appears to relate to a situation involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments.

Our Comments

Based on the facts outlined above and assuming that our description of the taxation of the QIC is accurate, we would consider the above-noted QIC to be liable to tax in Barbados within the meaning of Article IV of the Canada-Barbados Tax Agreement (Treaty) and, subject to subsection 5907(11.2) of the Regulations, to be resident in Barbados for the purposes of Part LIX of the Regulations. Subsection 5907(11.2) deems a foreign affiliate of a corporation not to be resident in a country with which Canada has entered into a tax treaty unless the foreign affiliate is described in one of paragraphs 5907(11.2)(a) to (d). Assuming that the QIC is described in Article XXX(3) of the Treaty, we would consider the QIC to be resident in Barbados for the purposes of Part LIX of the Regulations because of paragraph 5907(11.2)(c). On the other hand, if the QIC is not described in Article XXX(3) of the Treaty, we would consider the QIC to be resident in Barbados for the purposes of Part LIX of the Regulations because of paragraph 5907(11.2)(a).

We trust that our comments are of some assistance.

Yours truly,

Daryl Boychuk
Manager
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch