31 October 1995 External T.I. 9511425 - RESIDENCE OF A U.S. "S" CORPORATION

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:

Whether a U.S. "S" Corporation is a resident of the U.S. for purposes of Canada-U.S. Income Tax Convention

Position:

Yes

Reasons:

Existing posistion that such corps are liable to tax in U.S.

		951142
XXXXXXXXXX	David R. Senécal

Attention: XXXXXXXXXX

October 31, 1995

Dear Sirs:

Re: United States "S" Corporation

This is in reply to your letter of April 7, 1995, wherein you request our views as to whether an "S" Corporation as defined under section 1361 of the U.S. Internal Revenue Code would be subject to the provisions of the Canada-U.S. Income Tax Convention (the "Convention"). We apologize for the delay in responding.

Article I of the Convention provides that the Convention is generally applicable to persons who are residents of either Canada or the United States. In order for a corporation to be considered a resident of the United States under the Convention, it must be liable to tax therein on its world income as are corporations incorporated pursuant to the laws of the United States. An "S" corporation is such a corporation and is only treated as a flow-through entity by reason of an election made by its shareholders. Notwithstanding such election, a "S" corporation remains subject to tax in the United States on its world income should certain conditions fail to be met. It may also be subject to tax in the United States on certain types of income. Consequently, we are of the view that an "S" corporation is to be considered a resident of the United States for purposes of the Convention.

We trust that our comments will be of assistance.

Yours truly,

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