13 July 1995 External T.I. 9505185 - UK CONVENTION ART XIII - SHARES

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.

Principal Issues:

Do paragraphs 5(a) and 8 of Article XIII of the Canada-UK Tax Convention preclude Canada from taxing capital gains realized by a UK shareholder on the alienation of shares of a Canadian public company, where the shares derive most of their value from Canadian real estate?

Position TAKEN:

Yes provided that:

(i) the shares themselves are specifically listed on a prescribed stock exchange in Canada (and not just those of another class of the public co.) (paragraphs 5(a) and (7)(a) of Article XIII); and

(ii) the proceeds of disposition are remitted to or received in the U.K. (paragraph 27(2) of Article XXVII).

Reasons FOR POSITION TAKEN:

Wording of Convention. Also notes to paragraph 4 of Article XIII of OECD model convention and exception by Canada.

See also 933542 (June 6, 1994), 922116 (October 20, 1992), 922047 (November 23, 1992 & January 12, 1993).

XXXXXXXXXX 950518

Attention: XXXXXXXXXX

July 13, 1995

Dear Sirs:

Re: Disposition of Shares by a Non-Resident
Article XIII of the Canada-United Kingdom
Income Tax Convention (the "Convention")

We are writing in response to your letter dated February 21, 1995 in which you requested our views on the application of Article XIII of the Convention to gains realized on the alienation of shares of a Canadian resident corporation.

You have presented a scenario where a corporation which is publicly listed in the UK and resident in the UK for the purposes of the Convention ("PLC") owns shares of a Canadian resident corporation ("Canco"). PLC is not resident in Canada and does not carry on business in Canada for purposes of the Income Tax Act (Canada) (the "Act"). Canco is a taxable Canadian corporation within the meaning of subsection 89(1) of the Act. Canco's shares trade on a Canadian stock exchange as prescribed in section 3200 of the Regulations, and accordingly Canco is a public corporation within the meaning of subsection 89(1) of the Act. Canco's shares meet the definition of capital property in section 54 of the Act and constitute "taxable Canadian property" for the purposes of section 115 of the Act. Canco's assets are comprised almost entirely of real estate in Canada.

The situation described in your letter involves an actual proposed transaction. Assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada, Taxation.

However, we can offer the following comments which we hope will be of assistance to you. Provided that the shares of Canco which are disposed of are quoted on a prescribed stock exchange in Canada, in our view the shares will meet the exception in paragraph 5(a) of Article XIII of the Convention and any resulting gain will therefore be exempt from taxation in Canada pursuant to paragraph 8 thereof. However, the disposition of shares of any other class of Canco which are not listed on a prescribed stock exchange in Canada will not qualify for this exception. In addition, the exemption from taxation in Canada of such gains by virtue of paragraphs 5(a) and 8 of Article XIII of the Convention only applies where the related proceeds of disposition are remitted to or received in the UK, pursuant to paragraph 2 of Article XXVII of the Convention.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.

Yours truly,

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