5 July 1995 External T.I. 9415285 - ROYALTIES

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.

		941528
XXXXXXXXXX	Tim Kuss

Attention: XXXXXXXXXX

July 5, 1995

Dear Sirs:

Re: Paragraph 212(1)(d) of the Act
Article XII of the Canada-U.S. Income Tax Convention

This is in reply to your letter dated June 8, 1994 regarding the application of the above provisions to the following hypothetical situation. We apologize for the delay in responding.

• A Canadian corporation ("Canco") purchases goods with respect to a particular imported line by placing an order with an arm's length U.S. company ("Usco").
• Usco directs the order to its Hong Kong affiliate ("HK Co.").
• HK Co. ships the goods and invoices directly to Canco.
• Usco charges Canco a 15% commission based on the cost of the goods purchased from HK Co.
• Usco does not carry on business in Canada and does not have a permanent establishment in Canada.
• There is no written agreement with respect to the 15% commission.

It would appear from the precise nature of your query that we are being asked to provide our views with respect to a factual situation involving a possibly completed transaction. As indicated in paragraph 21 of Information Circular 70-6R2, we are not in a position to deal with factual proposed transactions other than in the form of an advance ruling request where the identity of the parties is known and all the facts surrounding the proposed transaction are presented to us. Issues involving completed transactions should be addressed by the appropriate District Taxation Office of Revenue Canada.

In any event, it would be a question of fact as to exactly what services would be performed or what information would be provided by Usco and HK Co. in consideration for the fees paid to Usco and HK Co. This could only be determined with full knowledge of all of the particulars of the situation. Based on the information that has been provided we are unable to express any opinion on the matter.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch