1993 External T.I. 9314180 F - 5870 Treaty Shopping and GAAR

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.

1993 CORPORATE TAX MANAGEMENT CONFERENCE

QUESTION 7

THE GENERAL ANTI-AVOIDANCE RULE

Does Revenue Canada believe that "treaty shopping" is subject to the general anti-avoidance rule. For example, if a resident of a non- treaty country owning computer software rights licenses them to residents of Canada via a Dutch corporation to take advantage of the exemption in the new protocol amending the Convention between the Kingdom of the Netherlands and Canada (the "Convention"), would Revenue Canada seek to deny the Canadian withholding tax exemption on computer software royalty payments from the resident of Canada to the corporation resident in the Netherlands?

Department's Position

Whether or not the general anti-avoidance rule applies to a particular transaction is a question of fact. However, where a non-resident of Canada enters into a series of transactions designed primarily to secure an exemption or reduction from Canadian tax under an income tax convention Canada has with another country, the Department would seek to apply the general anti-avoidance rule to deny any tax benefit such transactions would otherwise produce. In the above example, it should be noted that should the interposed Dutch corporation not be the beneficial owner (beneficial owner is not necessarily the legal owner) of the royalty payments, the exemption provided in the new protocol amending the Convention will not apply. In such circumstances, paragraph 2 of Article 12 of the Convention would apply to the royalty payments. However, the Dutch corporation would not qualify for the reduced rate.

Prepared by: Olli Laurikainen

Date: November 23, 1993

File No: 931418