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.
XXX
RE: Guarantee fees paid to non-residents
This is in reply to your letter dated August 16, 1984 concerning the exigibility of Part XIII tax on guarantee fees paid by a Canadian resident corporation to a Swiss corporation.
As you pointed out, paragraph 214(15)(a) of the Income Tax Act (the "Act") provides that any amount paid as a guarantee fee is deemed to be a payment of interest, and therefore Part XIII tax would (but for a particular provision in an Income Tax Convention) be exigible pursuant to paragraph 212(1)(b) of the Act. Furthermore, as you requested, we have considered the various articles of the Canada-Switzerland Income Tax Convention. (the Convention) to which you referred. In our opinion, the definition of "interest" in paragraph 5 of Article XI of the Convention is broad enough to include guarantee fees. In particular, we feel that the guarantee fees would constitute "income assimilated to income from money lent by the taxation law of the State in which the income arises" as specified thereunder. Therefore, there would be no alleviating provision in the Convention which would eliminate the requirement to withhold Part XIII tax in accordance with the Act, referred to above.
We hope these comments will be of assistance.
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