16 June 1997 External T.I. 9631605 - ACTIVE BUSINESS EARNINGS-FOREIGN TAX RULINGS

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:

Does paragraph 5907(2)(f) of the Regulations extend to income which has been excluded from the computation of the "earnings amount" by virtue of a foreign income tax ruling?

Position:

Yes.

Reasons:

Provided foreign income tax law provides for issuance of ruling.

963160
XXXXXXXXXX J. Stalker

Attention: XXXXXXXXXX

June 16, 1997

Dear Sirs:

Re: Paragraph 5907(2)(f) of the Income Tax Regulations

We are writing in response to your letter dated September 19, 1996 in respect of paragraph 5907(2)(f) of the Income Tax Regulations (the "Regulations").

Provided the conditions for the application of paragraph 5907(2)(f) of the Regulations are otherwise satisfied, that provision includes in the computation of a foreign affiliate's active business earnings, any revenue, income or profit derived by it in the year from an active business carried on in a particular country and which has not been included in the computation of the affiliate's income from that active business by reason of the foreign income tax law which is relevant in computing that income. In our view, the application of paragraph 5907(2)(f) of the Regulations would generally extend to income which is excluded from such computation by virtue of an income tax ruling issued pursuant to a provision in the foreign income tax law. Paragraph 5907(2)(j) would apply to any expenses incurred to earn such income if not otherwise deducted in computing the amount included under paragraph 5907(2)(f) of the Regulations.

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 22 of Information Circular 70-6R3, are not binding on the Department.

Yours truly,

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