2 January 1992 Income Tax Severed Letter 9134135 - Payments for use of movable property to Norway

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Subject: PAYMENTS FOR USE OF MOVABLE PROPERTY TO NORWAY Section(s): ART 7, ART 12, 212(1)(d)(i)]

913413
K. B. Harding
957-2111

XXX

Attention: XXX

Dear Sirs:

Re: Canada-Norway Income Tax Convention (the "Convention")

This is in reply to your letter of December 10, 1991 wherein you requested our views concerning withholding tax pursuant to subparagraph 212(1)(d)(i) of the Income Tax Act with respect to rental payments made by a Canadian resident to a Norwegian lessor for the use of moveable property in Canada.

Rental payments made by a Canadian resident to a non-resident of Canada will be subject to 25% withholding tax in Canada unless such amounts are either reduced or eliminated by virtue of a tax agreement or convention.

Generally, such rental payments when received by a corporation resident in Norway will fall within Article 6 (Business Profits) of the Convention unless such payments are carved out by another article of the Convention. Since Article 11 (Royalties) in particular and other articles of the Convention do not carve out rental payments on moveable property, such payments will be taxable pursuant to Article 8 of the Convention and will be exempt from tax in Canada unless the Norwegian resident carries on business in Canada through a permanent establishment

Rental Payments Taxed in the Hands of the Partnership

Where the rental payments are received by a Norwegian limited partnership which has no Canadian resident partners, such payments will be treated in the manner outlined above provided the limited partnership is considered a resident of Norway for purposes of the Convention. Paragraph 1 of Article 3 of that Convention will determine whether or not the limited partnership will qualify as a resident of Norway for purposes of the Convention.

Rental Payments taxed in the Hands of the Partners

However, where the income of the limited partnership is not taxed in the hands of the partnership but is taxed in the hands of the individual partners it will be a question of fact whether or not the partners are carrying on a business and whether that business is being carried on in Canada through a permanent establishment.

Where a limited partnership is considered to carry on business, each of the individual partners will be considered to carry on that business and where that partnership carries on business in Canada through a permanent establishment each of the partners will be considered to carry on that business in Canada through a permanent establishment.

Accordingly, where all the partners are from Norway and the limited partners are taxed on the rental payments received from Canada in respect of the rental of movable property used in Canada the provisions of that Convention will apply to each of the partners. However, where any of the partners of a Norwegian limited partnership are residents of countries other than Norway or Canada, the articles of the appropriate tax agreement or convention, if one exists, will apply (i.e. a resident of France who is a partner of the Norwegian limited partnership will fall within the provisions of the Canada-France Income Tax Convention with respect to his share of the profits of the limited partnership where the profits of that partnership are not taxed at the partnership level.) Therefore, for non-Norwegian partners (other than Canadian residents) of the Norwegian limited partnership, the rental payments in respect of movable property used in Canada will be subject to tax in Canada at a 25% rate unless the provisions of a tax agreement or convention reduces that rate.

Canadian Residents of Norwegian Limited Partnership

A Canadian resident of a Norwegian limited partnership will be required to include his share of the profits from such partnership in income in accordance with section 98 of the Income Tax Act.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch