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.
DRAFT
Canadian Tax Foundation
Corporate Management Tax Conference
June 14, 1996
Question 3
Resident in a Designated Treaty Country - "Exempt Earnings"
Is it Revenue Canada's view that in order for a foreign affiliate to accumulate "exempt earnings" the foreign affiliate must be a resident of a particular "designated treaty country" both
A)under Canadian common law principles (mind and management test), and
B)under the terms of Canada's tax treaty with that particular country?
Department's Position
The term "resident in a designated treaty country" is not defined. Therefore general Canadian common law principles apply in determining whether a foreign affiliate is otherwise resident in a designated treaty country. Draft Regulation 5907(11.2) deems a foreign affiliate not to be resident in a designated treaty country unless one of paragraphs 5907(11.2)(a), (b), (c) or (d) is satisfied. The test is therefore a two-pronged test. As well, the references to "that country" found in draft Regulation 5907(11.2) are to the country that the affiliate is otherwise resident under Canadian common law. Therefore the affilate must be resident in the same country under both tests in order to be considered "resident in a designated treaty country".
Prepared by: Tim Kuss
Date: May 30, 1996
File Number: 961909
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