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.
XXXX
D.S. Delorey (613) 995-2455
November 3, 1982
XXXX
Re: Article X Canada-U.K. Tax Convention (1978)
This is in reply to your letter of October 18, 1982 concerning the wording in part 5 of the subject Article.
Part 5 of Article X exempts from Part XIII tax those dividends paid by a subsidiary resident in Canada to its U.K. parent, provided the U.K. parent has a permanent establishment in Canada through which it carries on business and provided the holding in respect of which the dividends are paid is effectively connected with such permanent establishment.
You describe a situation where a U.K. parent having a branch operation in Canada would establish a Canadian subsidiary which would purchase a building in Canada, with the only connection between the U.K. parent's Canadian branch and the new subsidiary being the possible management of the building, for which the branch would be paid a commercial fee. You ask if in this situation, the subject exempting provisions would apply.
In our view, those provisions would not apply. Our interpretation of the subject provisions is that they apply to those situations where this Department can justify taking the position that the dividend income is really that of the Canadian branch of the U.K. parent and, as such, it is taxable under Part I and Part XIV of the Income Tax Act as part of the profits of that permanent establishment.
In the situation presented, we can see nothing that would justify this Department taking such a position.
We trust the above satisfactorily answers your query.
Yours truly, for Director Non-Corporate Rulings Division
Art. X - Canada-U.K. Convention
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