28 July 1997 External T.I. 9639775 - SERVICES PERFORMED BY FOREIGN AFFILIATES

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:

Would marketing services provided by a controlled foreign affiliate of a Canadian manufacturer for that manufacturer be included under paragraph 95(3)(b) so that they would not be "services" for the purposes of paragraph 95(2)(b)?

Position:

Yes.

Reasons:

Law, intent.

							963977
XXXXXXXXXX								J. Stalker

Attention: XXXXXXXXXX

July 28, 1997

Dear Sirs:

Re: Paragraphs 95(2)(b) and 95(3)(b) of the Income Tax Act (Canada) (the "Act")

We are writing in response to your letters of November 6, 1996 and January 13, 1997 in respect of the above-noted provisions.

You have asked about the application of paragraph 95(2)(b) of the Act where a controlled foreign affiliate of a Canadian manufacturer carries out "brokerage services" in support of the Canadian manufacturer. These brokerage services entail marketing the goods of the Canadian manufacturer to arm's length parties in the foreign jurisdiction. The foreign affiliate provides services only. It does not acquire the manufactured goods for sale to non-resident customers of the Canadian manufacturer but does locate these customers for its Canadian parent.

It is our view that generally such marketing services would be described by paragraph 95(3)(b) of the Act as "services performed in connection with the purchase or sale of goods" and accordingly would not be services for the purposes of paragraph 95(2)(b).

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 Foreign Division
Income Tax Rulings and Interpretations Directorate