27 October 1986 Income Tax Severed Letter 5-1985 - [861027]

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.

K. Harding (613) 957-2129

October 27, 1986

Dear Sirs:

This is in reply to your letter of July 28, 1986 concerning the Canada-Brazil Income Tax Convention (Convention).

Your letter requested Revenue Canada's position as to whether or not paragraph 3 of Article 22 of the Convention applies on interest income arising from a loan booked through a permanent establishment in a third state.

As a result of recent enquiries the Department has reviewed its position on this subject. The tax sparing provided in paragraph 3 of Article 22 of the Convention applies in the case of interest to which paragraph 2 of Article II of the Convention applies. It is our view that paragraph 2 of Article II of the Convention does not apply in circumstances where paragraph 6 of that Article applies. Consequently, it is our position that paragraph 3 of Article 22 of the Convention will not apply to interest income arising from a loan booked in a third state.

However, paragraph 2 of Article 22 would apply to allow a foreign tax credit, subject to section 126 of the Income Tax Act, with respect to the actual income taxes paid by the permanent establishment.

We trust this is satisfactory for your purposes.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch