20 November 1990 Ministerial Letter 900518 F - Foreign Tax Credit and IT-270R

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.

SUBJECT:  Interpretation Bulletin IT-270R

This is in reply to your memorandum dated April 23, 1990 whereby you requested our comments concerning the determination of the amount of "tax paid ... to the government of a country other than Canada" for purposes of the foreign tax credit under section 126 and the deductions under subsections 20(11) and (12) of the Act having regard to paragraph 14 of IT-270R.

Paragraph 14 of IT-270R states that an amount of tax paid that will be refunded to the taxpayer is not considered to be tax paid for the year. This statement is essentially correct. However, it is not necessarily correct to conclude from this that an amount which the Department considers "should" be refunded "will" be refunded.

Whether an amount is "tax paid ... to the government of a country other than Canada" depends upon whether there was a legal requirement under the law of the foreign country to pay the amount as tax.

Where an amount has been withheld at source on account of tax (whether in Canada under the Income Tax Act or in a foreign country under the income tax laws of such country), we generally consider such amount to be withheld as security for the potential tax liability of the payee as opposed to being a determination of such liability. The amount withheld is generally not considered to be an assessment or a levy of tax as such and thus the entire amount may not be an amount of "tax" paid.

In Canada and probably in most other countries there is a legal requirement to pay as tax the amount assessed by the taxation authorities of the government, notwithstanding that such amount may subsequently be adjusted by a reassessment by the taxation authorities or by an appeal to the courts. In respect of foreign countries having such legal requirements, it is generally not open to the Department to take the position that the amount of tax assessed and paid is not "tax paid". Of course, if the amount of tax payable is subsequently adjusted by reassessment by the foreign taxation authorities or order of the courts of the foreign jurisdiction or otherwise, the Department may reassess in respect of the taxpayer's claims under section 126 and subsections 20(11) and (12).

21(1)(b)

We discussed this matter informally with Mr. Emilio Sanchez of the Department of Finance. Mr. Sanchez advised that the Department of Finance would be very interested in being advised of situations where problems arise as a result of our treaty partners not administering our treaties appropriately. We have requested Provincial and International Relations Division to bring our interpretation of "tax paid" to the attention of the Department of Finance. We suggest that you arrange to have Provincial and International Relations Division bring to the attention of the Department of Finance from time to the particular problems encountered by your Division.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch