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: (i) Whether subsection 105(1) of the Income Tax Regulations would apply to a situation where a non-resident person is collecting fees from another non-resident person as an agent on behalf of a resident of Canada in respect of services rendered in Canada by the Canadian resident? (ii) Whether the non-resident person who acts merely as an agent for a resident of Canada carries on business in Canada?
Position: (i) No. (ii) No.
Reasons: (i) Although the fees collected are in respect of services rendered by the Canadian resident in Canada, the fees belong to the Canadian resident as if the fees were paid directly by the non-resident person to the Canadian resident. (ii) All the services provided by the non-resident agent will be provided outside of Canada.
XXXXXXXXXX 2007-026080
Attention: XXXXXXXXXX
XXXXXXXXXX , 2008
Dear Sirs or Madams:
Re: XXXXXXXXXX
Advance Income Tax Ruling
We are writing in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-referenced taxpayer.
To the best of your knowledge and that of the taxpayers involved, none of the issues involved with this request:
(i) is involved in an earlier return of the taxpayer or a related person;
(ii) is being considered by a tax services office or a taxation centre in connection with a tax return already filed by the taxpayer or a related person;
(iii) is under objection; or
(iv) is before the courts or, if a judgement has been issued, the time limit for appeal has not expired.
The rulings given herein are based solely on the facts, proposed transactions and purpose of the proposed transactions described below. Facts and proposed transactions in the documents submitted with your request not described below do not form part of the facts and proposed transactions on which this ruling is based and any reference to these documents is provided solely for the convenience of the reader.
Definitions
In this letter the following terms have the meanings specified:
(a) "Act" means the Income Tax Act R.S.C. 1985 c.1 (5th Supp.), as amended to the date hereof, and unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provisions of the Act;
(b) "Aco" means XXXXXXXXXX company incorporated under the laws of XXXXXXXXXX , with its head office located at XXXXXXXXXX ;
(c) "Aco Group" means Aco, and the corporate entities affiliated (within the meaning of subsection 251.4(1) of the Act) to Aco;
(d) "Agency Agreement" means the agreement between Aco and Canco, as described in paragraph 8 below;
(e) "BN" means the business number assigned by the Canada Revenue Agency;
(f) "Canco" means a corporation to be incorporated under the laws of XXXXXXXXXX , with head offices located in XXXXXXXXXX ;
(g) "Canadian Services" means all the services described in paragraph 7 below that will be rendered by Canco to its clients;
(h) "Client" means XXXXXXXXXX ;
(i) "Client Agreement" means the XXXXXXXXXX to be entered into by Canco and the Client pursuant to which Canco will provide the Canadian Services;
(j) "Regulations" means the Income Tax Regulations under the Act; and
(k) "Xco" means XXXXXXXXXX , a corporation resident in XXXXXXXXXX . Xco is affiliated with all the companies in the Aco Group and is the management company of the Aco Group.
Facts
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
1. Aco is a corporation incorporated in XXXXXXXXXX and is not a resident of Canada for the purposes of the Act.
2. XXXXXXXXXX
3. The registered office of each client of Aco Group is located in XXXXXXXXXX .
4. Aco does not otherwise carry on business in Canada and does not file any returns in Canada pursuant to the Act. Aco does not have a BN.
5. The Client is a corporation incorporated under the laws of XXXXXXXXXX and is resident in XXXXXXXXXX . It is affiliated with all of the companies in the Aco Group. It provides under contract XXXXXXXXXX to Xco in respect of any business that Xco will do in XXXXXXXXXX .
Proposed Transactions
6. Canco will be incorporated in XXXXXXXXXX as a wholly-owned subsidiary of Xco. All of the directors of Canco will also be directors of Aco who are non-residents of Canada.
7. Canco desires to provide the Canadian Services to its clients. Pursuant to the Client Agreement to be entered into by Canco, the Client, and Aco (as an agent of Canco), Canco will provide some of the following services:
XXXXXXXXXX
8. Canco will enter into an Agency Agreement with Aco. The Agency Agreement will stipulate that Aco will act as an agent for Canco and Canco will be the principal. Pursuant to the terms of the Agency Agreement, Aco will agree to promote the Canadian Services offered by Canco, to invoice and to collect from the Client the fees in respect of the Canadian Services provided by Canco, and to remit such amounts to Canco in respect of the provision of such services. All other amounts collected by Aco from the Client (as principal) in respect of its own services provided to the Client under its own service agreement with the Client will be the property of Aco, services such as providing an individual who is ordinarily resident in XXXXXXXXXX to act as resident representative of the Client to XXXXXXXXXX .
9. All the services provided by Aco to Canco pursuant to the Agency Agreement will be provided outside of Canada. All the decisions that are to be made by Aco with respect to the provision of agency services to Canco will not be made in Canada. Aco will be paid a reasonable fee in respect of the services it provides to Canco as an agent pursuant to the Agency Agreement.
10. Canco will also provide Canadian Services to other clients with whom it deals either at arm's length or not at arm's length. All these clients are residents of XXXXXXXXXX .
Purpose of the Proposed Transactions
11. The purpose of the proposed transactions is to enable the Client to benefit from the education, knowledge and expertise of the Canadian labour market in respect of the Canadian Services and to enable the Aco Group to provide cost-efficient services to the Client XXXXXXXXXX . The purpose of having Aco acting as an agent for Canco is to centralize all the billing and collection functions in one entity.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:
A. Subsection 105(1) of the Regulations will not apply to the payments made by the Client to Aco, in respect of the Canadian Services rendered by Canco to the Client.
B. Aco will not be considered carrying on business in Canada for the purposes of the Act by reason only of providing agency services to Canco pursuant to the Agency Agreement.
C. The Client will not be considered carrying on business in Canada for the purposes of the Act by reason only of Canco providing some or all of the Canadian Services to the Client pursuant to the Client Agreement.
The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the Canada Revenue Agency ("CRA") provided that the proposed transactions are completed by XXXXXXXXXX .
These rulings are based on the Act in the present form and do not take into account amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.
Nothing in this ruling should be construed as implying that the CRA has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. Specifically, nothing in this ruling should be construed as implying that the CRA has agreed to or reviewed
(i) the issue of whether Aco or the Client otherwise carry on business in Canada;
(ii) the reasonableness and the tax consequences of the fees that will be paid by Canco to Aco with respect to the provision of services by Aco as an agent pursuant to the Agency Agreement; and
(iii) the jurisdiction of the mind, management and control of the Client.
Yours truly,
XXXXXXXXXX
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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