5 June 2009 Roundtable, 2009-0316631C6 - CLHIA 2009 - Barbados Insurance Companies

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: 1) Is a Barbados Exempt Insurance Company (EIC) eligible for exempt surplus treatment? 2) Is a Barbados EIC eligible for benefits under the Canada-Barbados Tax Agreement?

Position: 1) A Barbados EIC would be eligible for exempt surplus treatment only if it were resident in Barbados within the meaning of Article IV of the Canada-Barbados Tax Agreement; 2) No

Reasons: 1) Subsection 5907(11.2) of the Income Tax Regulations; 2) Article XXX(3) of the Canada-Barbados Tax Agreement

CLHIA Roundtable - May 2009

Barbados Qualifying Insurance Companies (QICs) and Barbados Exempt Insurance Companies (EICs)

Question #3

a) In CRA Document No. 2005-0149771E5, dated September 19, 2008, the CRA states that a Barbados QIC is a resident of Barbados for purposes of Part LIX of the Income Tax Regulations (Regulations). Since income earned by a Barbados QIC from active business activities will qualify for exempt surplus treatment, will the CRA confirm whether active business income earned by a Barbados EIC will also qualify for exempt surplus treatment?

b) Is a Barbados EIC eligible for benefits under the Canada-Barbados Tax Agreement (Agreement)?

c) Does the above-noted interpretation letter, which deals with a Barbados QIC that carries on a property and casualty insurance business, also apply to a Barbados QIC that carries on a life insurance business?

Response

(a) A Barbados EIC would be eligible for exempt surplus treatment only if it were resident in Barbados within the meaning of Article IV of the Agreement. To be resident in Barbados within the meaning of Article IV, an EIC must be liable to taxation in Barbados based on one of the criteria set out in that Article. Our current position is that a Barbados EIC is not liable to taxation in Barbados within the meaning of Article IV and, therefore, it is not resident in Barbados for the purpose of the Agreement. Our position, however, is under review and we will release the conclusions reached in the course of our review when it is completed.

(b) To be eligible for benefits under the Agreement, a Barbados EIC must be liable to taxation in Barbados based on one of the criteria set out in Article IV of the Agreement and it must not be a company described in Article XXX(3) of the Agreement. Article XXX(3) states:

This Agreement shall not apply to companies entitled to any special tax benefit under the Barbados International Business Companies (Exemption from Income Tax) Act, Cap 77 or to companies entitled to any special tax benefit under any similar law enacted by Barbados in addition to or in place of that law.

In our view, a Barbados EIC is a company described in Article XXX(3) and, therefore, even if a Barbados EIC were liable to taxation in Barbados, it would not be entitled to any benefits under the Agreement.

We would also note that we have not previously expressed an opinion on whether a Barbados QIC is a company described in Article XXX(3). In our document 2005-0149771E5, the issue was whether a Barbados QIC that carried on a property and casualty insurance business was resident in Barbados for the purposes of Part LIX of the Regulations. In the document, we noted that even if the QIC were described in Article XXX(3), it would not affect the determination of whether it was resident in Barbados for the purposes of Part LIX since paragraph 5907(11.2)(c) of the Regulations would apply to ensure that the determination of residency would be made without reference to Article XXX(3).

(c) Our views in document 2005-0149771E5 would also apply to a Barbados QIC that carries on business as a life insurer provided that the QIC is managed and controlled in Barbados and is subject to the same tax regime as a QIC that carries on a property and casualty insurance business.