23 July 1982 Income Tax Severed Letter 5-4130 - [820723]

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.

T. Clemons tel. (613) 693-6201

July 23, 1982

Dear Sir:

This is in reply to your letter of May 26, 1982 regarding this Department's position with respect to the taxation of drillships operating in Canada.

We read with interest the article on Admiralty law, the author of which concluded that "There should be no doubt that drillships and semi-submersibles, whether self-propelled or not, are ships." However, in our view, income tax treaties or conventions which exempt the profits derived from the operation of ships are concerned with the principal function, rather than with the form or incidental navigational capabilities of the particular structure.

As those treaties normally contain provisions for the avoidance of double taxation, it is difficult to understand your concern that there would be additional costs to the Canadian contractors from the Taxation of these profits in Canada. We understand that the current position of the Department is comparable to the position of many other countries with respect to the taxation of offshore drilling operations.

We wish to thank you for your representations in this matter, however, we are not presently considering any change to our position.

Yours truly,

for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch

PC/rb