11 April 1995 External T.I. 9421695 - WITHHOLDING TAX

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.

5-942169
XXXXXXXXXX (613) 957-8953

Attention: XXXXXXXXXX

April 11, 1995

Dear Sirs:

This is in reply to your letter of June 27, 1994 concerning the withholding of an amount of 25% of the interest you pay in the course of your business to XXXXXXXXXX in Hong Kong.

As the situation you have outlined in your letter relates to your own business situation, we are unable to comment specifically thereon as technical interpretations are only provided in respect of hypothetical situations. Notwithstanding this fact we are prepared to offer some general comments that we hope will be of help to you.

Paragraph 212(1)(b) of the Income Tax Act (the "Act") imposes a tax of 25% on interest paid or credited to non-residents by residents of Canada. No deductions can be made from these amounts on which the 25% tax will apply by virtue of subsection 214(1) of the Act. Pursuant to section 215 of the Act, this tax must be withheld by the resident payer or his agent. This requirement applies to non-resident individuals as well as corporations including banks. If a bank acts as an agent, it will be required under section 215 of the Act to withhold such an amount or a reduced amount if so specified in a tax agreement between Canada and the beneficiary's country of residence. Canada has no tax treaty with Hong Kong. Accordingly, if the beneficiary is a resident of Hong Kong, the rate of withholding is 25%.

The Canadian law is clear, non-residents are taxable on interest paid to them by persons resident in Canada. We suspect, from the facts of your letter, that your bank is simply withholding the amounts it is required to withhold under the Act as your agent for the interest paid to a non-resident. For your information, we have included Information Circular 76-12R4 and Information Circular 77-16R4.

We trust the present information will be of assistance to you. We regret our reply could not be more favourable.

Yours truly,

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