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.
M. Trotier (613) 957-8968
October 22, 1986
Dear Sir:
Re: Canada-Brazil Income Tax Convention (the "Treaty")
As you requested during the Canadian Bankers' Association meeting on October 1, 1986, this is to clarity our position concerning two tax sparing issues under Article 22 of the Treaty.
The first issue deals with whether or not subsection 20(12) of the Income Tax Act (the "Act") applies with respect to "tax spared" amounts. In our opinion subsection 20(12), which permits a deduction in computing income for non- business income tax paid to a foreign country, does not apply to "tax spared" amounts which in accordance with paragraph 2 of Article 22 of the Treaty are to be allowed by Canada as a deduction from Canadian tax paid on the non- business income.
The second issue is whether or not paragraph 3 of Article 22 of the Treaty applies on interest income arising from a loan booked through a Bank's branch in a third state. The sparing in paragraph 3 of Article 22 of the Treaty applies in the case of interest to which paragraph 2 of Article 11 of the Treaty applies. It is our view that paragraph 2 of Article 11 of the Treaty does not apply in circumstances where paragraph 6 of that Article applies. Consequently, in the situation aforementioned, it is our view that paragraph 3 of Article 22 of the Treaty does not apply.
In such a situation, paragraph 2 of Article 22 would nevertheless apply to allow a foreign tax credit, subject to the ordinary foreign tax credit provisions in the Act, with respect to the actual income taxes paid in Brazil.
As agreed, you will relate this information to the other members of the Canadian Bankers' Association.
Yours truly,
Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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