24 June 1996 Internal T.I. 9612907 - CREDITABILTY OF U.S. BRANCH PROFITS 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.

Principal Issues:

Whether U.S. Branch Profits Tax is a Creditable Tax

Position:

Yes

Reasons:

It is the equivalent of our Part XIV Branch Tax and the Canada-U.S. Income Tax Convention recognizes both countries' right to impose such a tax but within the limits provided for in the Convention.

We previously expressed an opinion that the tax was creditable in a letter to XXXXXXXXXX dated July 9, 1987 #5-3449.

									June 24, 1996

D. W. Mitchell						David R. Senécal
	Banking Specialist					(613) 957-9796
	Industry Specialist Services
	Toronto North TSO
									961290

Creditability of U.S. Branch Profits Tax

This is in reply to your memorandum of April 10, 1996, wherein you requested our opinion as to whether the U.S. Branch Profits Tax (the "Tax") levied by virtue of section 884(a) of the U.S. Internal Revenue Code would be creditable against Canadian income tax pursuant to subsection 126(2) of the Income Tax Act (the "Act").

In our opinion, the basis of taxation for the Tax is substantially similar to the branch tax imposed by Canada pursuant to Part XIV (Additional Tax on Non-resident Corporations) of the Act and is an "income or profits tax" for the purposes of section 126 of the Act. Consequently, to the extent that the Tax is calculated in accordance with the provisions of paragraph 6 of Article X of the Canada-U.S. Income Tax Convention and may reasonably be regarded as a tax in respect of the Canadian taxpayer's income from any business carried on by it in the U.S., the Tax paid will be included in the calculation of the taxpayer's "business-income tax" as defined in subsection 126(7) of the Act.

We trust that our comments will be of assistance to you.

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