10 July 1989 Ruling 32171 F - Income Tax Liability from U.S. Partnership

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.

July 10, 1989

Dear Sirs:

This is in reply to your letter of November 10, 1988 wherein you requested an advance income tax ruling on behalf of 24(1) and your subsequent letter of December 21, 1988 requesting we respond to the earlier letter by way of a technical interpretation rather than an advance ruling.

Generally speaking, it is our view that for purposes of determining income tax liability as may be reduced by agreements or conventions, a partnership should be treated as a conduit except for those jurisdictions where the partnership is taxed as a separate entity.  As an example, where a Canadian company borrows from a U.S. partnership, whose partners are residents of the U.S. and Germany, any interest paid on the loan will, for tax treaty purposes, be considered to be received by the individual partners. Accordingly, the interest article of the Canada-U.S. Income Tax Convention will apply to the U.S. partners whereas the interest article of the Canada-Germany Income Tax Agreement will apply to the German partners.

In our view, any dividends received by the U.S. partnership will be treated in the same manner as set out above in respect of interest.  Where U.S. partners of a partnership are exempt organizations which have complied with paragraph 76 of Information Circular 77-16R3 they will not be subject to withholding tax in Canada.

Persons making payments to a partnership that includes both exempt and non-exempt U.S. partners which are the beneficial owners of the interest and dividends are advised to contact the Department in order to obtain assurance that their withholding obligations will, in respect of payments for such partners, be reduced to nil or 15% in accordance with the tax reduction provided for in the Convention.

Since the other questions set out in your letter are questions of fact, we are not in a position to provide you with a response to those questions until such time as the transactions are completed.

Since your request for an advance income tax ruling has been withdrawn, a cheque for $325 will be returned under separate cover.

We trust these comments are adequate for your purposes and suggest you contact Mr. John Oatway, Source Deductions at (613) 954-1311 as to any administrative details (e.g., administrative agreements in respect of withholding) in dealing with this matter.

Yours truly,

D. Dalphyfor DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch