31 May 1984 Income Tax Severed Letter 5-6250 - ]Article IV of the Canada-United Kingdom Income 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.

C. Savage (613) 995-1178

May 31, 1984

Dear Sirs:

Re: Article IV of the Canada-United Kingdom Income Tax Convention

This is in response to your letter of April 18, 1984 requesting our opinion with respect to a provision of the Canada-United Kingdom Income Tax Convention (1978) (the "Treaty") in the hypothetical situation which you described as follows:

1. Corporation A, a U.K. corporation, owns all of the outstanding shares of Corporation B. Corporation A is not resident in Canada, does not have a permanent establishment in Canada and does not carry on a business in Canada.

2. Corporation B was incorporated in Canada after April 26, 1965 and carries on business in Canada.

3. Corporation B now desires to cease all activity in Canada and is proposing to sell all of its Canadian operations.

4. After all of the surplus has been remitted to Corporation A by way of dividends, Corporation B will transfer its effective mind and management to the U.K.

5. The fair market value of any assets remaining in Corporation B would be equal to or less than the paid-up capital of Corporation B. Such assets would have no appreciation potential.

6. Since Corporation B will have no assets in excess of paid-up capital, no Canadian income tax would be exigible under section 219.1 of the Income Tax Act in these circumstances. In fact, no Canadian tax advantage would arise on the corporate emigration of Corporation B.

Pursuant to paragraph 1 of Article IV of the Treaty, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management,, or any other criterion of a similar nature. Unlike the proposed Canada-U.S. Tax Convention, the Treaty contains no specific reference to place of incorporation. In your view, the phrase "any other criterion of a similar nature" would not include, for Canadian tax purposes, the place of incorporation.

While we agree that the phrase "any other criterion of a similar Nature" would not include the place of incorporation, in our view Corporation B would be a resident of Canada for the purposes of the Treaty.

The term "residence" is not defined in the Treaty. Paragraph 2 of Article III of the Treaty provides that any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State (i.e. Canada) relating to the taxes which are the subject of the Convention. Subsection 250(4) of the Act would deem Corporation B to be resident in Canada for the purposes of the Act. Since Corporation B would therefore be liable to taxation in Canada by reason of its being a resident of Canada, in our opinion, Corporation B would be a resident of Canada, within the meaning of paragraph I of Article IV of the Treaty.

We trust this will be of assistance.

Yours truly,

for Director Corporate Rulings Division Legislation Branch