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:
If a foreign affiliate only becomes resident in a designated treaty country part way through the year, will the whole year’s net earnings from an active business carried on through a PE in that country be included in its exempt surplus?
Position:
Yes.
Reasons:
Law.
XXXXXXXXXX 980712
J. Stalker
Attention: XXXXXXXXXX
July 8, 1998
Dear Sirs/Mesdames:
Re: Exempt Surplus
We are writing in response to your letter of March 9, 1998 in respect of the computation of the exempt surplus of a foreign affiliate.
You have described a situation where a U.S. incorporated company (USco), which is wholly owned by a corporation resident in Canada (Canco), is deemed to be a non-resident of Canada under subsection 250(5) of the Income Tax Act (Canada) but is not resident under common law in a designated treaty country. Just prior to the end of its taxation year, USco takes steps to make itself resident under common law in the U.S., and is so resident at the end of its taxation year.
It is our view that, if USco had during the taxation year carried on an active business through a permanent establishment in the US, its net earnings (as defined in subsection 5907(1) of the Regulations) from that active business in the U.S. for that taxation year would be included in the exempt surplus of USco with respect to Canco.
The above comments represent our general view 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
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