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. Whether USCO, a hypothetical non-resident corporation, meets the definition of a "reporting person" pursuant to section 233.1 of the Income Tax Act (the "Act") despite being exempt from tax in Canada on its business income under Article VII of the Canada-US Tax Treaty 2. Whether the transactions with ForeignCo, a resident of Japan who wholly owns USCO, would be subject to the filing requirements of section 233.1.
Position: 1. Yes 2. Yes
Reasons: USCO is considered a "reporting person" who has a "reportable transaction" per the definitions of subsection 233.1(1). USCO is therefore required, pursuant to 233.1(2), to file form T106 for transactions with each non-resident person with which USCO does not deal at arm's length, subject to the exception of subsection 233.1(4).
2010-035215
XXXXXXXXXX M. Gauthier
(613) 957-2095
February 5, 2010
Dear XXXXXXXXXX :
Re: Section 233.1 of the Income Tax Act
We are writing in response to your email of December 7, 2009 in which you requested an interpretation as to whether USCO, a hypothetical non-resident corporation, meets the definition of a "reporting person" pursuant to section 233.1 of the Income Tax Act (the "Act"). The email also requested an interpretation as to whether the transactions carried out by USCO with ForeignCo, a resident of Japan that wholly owns USCO, would be subject to the filing requirements of section 233.1.
Facts as provided:
1. ForeignCo is resident in Japan and has a wholly owned subsidiary resident in and carrying on business in the United States (USCO).
2. USCO purchases components from ForeignCo which it assembles in the U.S. along with components manufactured by USCO to produce a final product (widget). The total value of the components purchased is in excess of $1 million per year.
3. USCO sells the widgets manufactured in the U.S. to an arm's length customer resident in Canada.
4. Pursuant to section 253 of the Act, USCO carries on business in Canada. However, by virtue of Article V (6) of the Canada-U.S. Income Tax Convention (the "Treaty"), USCO does not have a permanent establishment in Canada. We have assumed that USCO would be entitled to benefits under the Canada-U.S. Treaty with respect to the income from the business carried on in Canada.
5. USCO files a treaty based return and Schedule 91 in Canada pursuant to clause 150(1)(a)(i)(B) of the Act.
Our Comments:
A "reporting person" as defined in subsection 233.1(1) of the Act includes a person who is a non-resident and carries on a business in Canada. The facts of the hypothetical situation indicated that section 253 of the Act deemed USCO to be carrying on business in Canada. Therefore, USCO, a non-resident, meets the definition of a "reporting person".
A "reportable transaction", defined in subsection 233.1(1) of the Act, is "a transaction or series of transactions that relate in any manner whatever to a business carried on in Canada by the reporting person". USCO transacts with ForeignCo to acquire components used in the widgets that are sold by USCO in the course of carrying on business in Canada. Accordingly, USCO is a "reporting person" whose transactions with ForeignCo relate to the business carried on in Canada and therefore USCO has "reportable transactions". As a result, USCO is generally required pursuant to subsection 233.1(2) to file form T106 "Information Return of Non-Arm's Length Transactions with Non-Residents" to report the transactions with ForeignCo.
An exception to subsection 233.1(2) of the Act is detailed in subsection 233.1(4) which states that a reporting person is not required to file form T106 unless the total amount of reportable transactions exceeds $1,000,000. The hypothetical situation indicated that the total value of the components purchased from ForeignCo was in excess of $1,000,000. Therefore, the exception in subsection 233.1(4) would not apply to the hypothetical situation.
Upon written request to the Minister under subsection 220(2.1) of the Act, the Minister may waive the requirement to file form T106. To request the Minister to waive the filing of form T106 under subsection 220(2.1), please send your request to the International Tax Services Office in Ottawa at the following address:
International Tax Services Office
2204 Walkley Road
Ottawa ON K1A 1A8
We hope this information is of assistance to you.
Yours truly,
Olli Laurikainen, CA
Section Manager for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency
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