16 June 2014 External T.I. 2014-0516451E5 - Application of Canada-Israel Tax Convention

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 B.C. Venture Capital Corporation qualifies as a Canadian resident company for the purposes of the Canada-Israel Tax Convention

Position: Yes

Reasons: A B.C. Venture Capital is liable to tax under the Act by reason of domicile, residence or any other criterion of a similar nature. If the corporation is a resident of Canada and Israel then it shall be deemed to be a resident of the State of which it is a national.

XXXXXXXXXX
2014-051645
Sylvain Grégoire

June 16, 2014

Dear XXXXXXXXXX,

Re: Application of Canada-Israel Tax Convention to BC Venture Capital Corporation

This is in reply to your letter dated December 19, 2013 requesting our views as to whether a B.C. Venture Capital Corporation ("VCC") the shares of which are owned by persons who are residents of Israel for purposes of the Canada-Israel Income Tax Convention ("Treaty"), qualifies as a Canadian resident company for the purpose of the Treaty.

You indicated that the VCC is an incorporated British Columbia company registered under the Small Business Venture Capital Act, R.S.B.C. 1996, c. 429 ("SBVCA"). Pursuant to paragraph 3(1)(a) of the SBVCA, to register as a VCC, the applicant must be incorporated under either the B.C Business Corporations Act or the Canada Business Corporations Act.

You further indicate that the VCC could be considered as a resident of both Canada and Israel under the domestic tax laws of those countries and liable to taxation therein by reason of its domicile, residence, place of management or any other criterion of a similar nature. We presume that the VCC was originally incorporated under either the B.C Business Corporations Act or the Canada Business Corporations Act and has not been granted articles of continuance (or similar constitutional documents) in any other jurisdiction.

Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

The Income Tax Act (the "Act") sets out certain deeming provisions in subsections 250(4) to 250(6) of the Act that are relevant to the determination of whether a corporation is resident of Canada under the Act. Pursuant to subsection 250(4) a corporation that is incorporated in Canada after April 26, 1965 is deemed to be resident in Canada for the purposes of the Act. However, subsection 250(4) is subject to subsection 250(5) which confirms that residence under a tax treaty will prevail. It provides more specifically that notwithstanding any other provision of this Act (other than 126(1.1)(a)), a person is deemed not to be resident in Canada at a time if, at that time, the person would, but for this subsection and any tax treaty, be resident in Canada for the purposes of this Act but is, under a tax treaty with another country, resident in the other country and not resident in Canada.

Due to the potential application of subsection 250(5), in order to determine whether the VCC is resident in Canada for the purposes of the Act it is necessary to take into account the Treaty to establish if under the Treaty it may be resident of Israel.

Paragraph 1 of Article IV of the Treaty provides that for the purposes of the Treaty the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. Since the VCC is incorporated in Canada, the corporation is a resident of Canada pursuant to paragraph 1 of Article IV. However, it could also be resident in Israel under that paragraph if, for example, its mind and management resides in Israel. Paragraph 3 of Article IV is a tie-breaker rule that provides if a corporation is resident in both Canada and Israel, by reason of paragraph 1 of Article IV, the corporation is deemed to be resident of the state in which it is a national. The term "national" is defined in subparagraph 1(h) of Article III of the Treaty in respect of both Canada and Israel. In all cases, a legal person deriving its status as such from the laws in force of Canada or Israel is a "national" of the respective jurisdiction. The place of incorporation is therefore determinative of a corporation's "nationality."

As the VCC was incorporated in Canada, even if it were otherwise found to be resident in both Canada and Israel under paragraph 1 of Article IV of the Treaty, subparagraph 3(a) thereof would nevertheless prevail such that the VCC would be considered resident in Canada for the purposes of the Treaty.

We hope that these comments will be of assistance.

Randy Hewlett
Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch