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: What is characterization of payment for XXXXXXXXXX ?
Position: In this case, services.
Reasons: Jurisprudence and analogy to other XXXXXXXXXX.
XXXXXXXXXX
XXXXXXXXXX 981173
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs/Mesdames:
Re: XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge your facsimile transmission of XXXXXXXXXX, your submission on the ruling request dated XXXXXXXXXX and received by us on XXXXXXXXXX, and your facsimile transmission of XXXXXXXXXX.
To the best of your client’s and your knowledge, none of the issues involved in this ruling request:
(i) is in an earlier return of XXXXXXXXXX or other related person;
(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of XXXXXXXXXX or other related person;
(iii) is under objection by XXXXXXXXXX or a related person; or
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.
Definitions
In this letter, the following terms have the meanings specified:
(a) Unless otherwise indicated, all references to statute are to the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended (the “Act”);
(b) XXXXXXXXXX;
(c) XXXXXXXXXX;
(d) XXXXXXXXXX;
(f) "O&M Costs" mean the costs and fees in relation to the operation and maintenance of the XXXXXXXXXX;
(g) XXXXXXXXXX;
(h) XXXXXXXXXX;
(i) XXXXXXXXXX;
(j) XXXXXXXXXX;
(k) XXXXXXXXXX.
Our understanding of the relevant facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. XXXXXXXXXX is a taxable Canadian corporation and a public corporation within the meaning of subsection 89(1) of the Act. XXXXXXXXXX percent of the equity of XXXXXXXXXX is owned by XXXXXXXXXX a U.S. public company.
2. XXXXXXXXXX is a taxable Canadian corporation within the meaning of subsection 89(1) of the Act and carries on a XXXXXXXXXX business. XXXXXXXXXX is a subsidiary wholly-owned corporation of XXXXXXXXXX within the meaning of subsection 248(1) of the Act. It is in the business of XXXXXXXXXX.
3.
XXXXXXXXXX.
4. XXXXXXXXXX The corporation does not carry on business in Canada and is not a resident of Canada.
5. XXXXXXXXXX The company does not carry on business in Canada and is not a resident of Canada.
6. XXXXXXXXXX deal at arm’s length with both XXXXXXXXXX.
7. XXXXXXXXXX has entered into a Construction, Operation and Maintenance Arrangement between XXXXXXXXXX.
8.
XXXXXXXXXX.
9.
XXXXXXXXXX.
XXXXXXXXXX.
10.
XXXXXXXXXX.
11.
XXXXXXXXXX.
12.
XXXXXXXXXX.
Proposed Transactions
13.
XXXXXXXXXX.
14.
XXXXXXXXXX.
15.
XXXXXXXXXX.
16. The XXXXXXXXXX will be for a period of XXXXXXXXXX years.
17. XXXXXXXXXX will be responsible for and pay to XXXXXXXXXX the O&M costs XXXXXXXXXX during the period the XXXXXXXXXX is held by XXXXXXXXXX. The O&M costs include a set annual escalating fee for regular maintenance of the XXXXXXXXXX. The O&M costs are not dependent in whole or in part on the use to be made of, or the benefit to be derived from, XXXXXXXXXX, or on sales or profits.
18. XXXXXXXXXX will also pay a restoration charge to XXXXXXXXXX. The restoration charge is the amount payable in respect of any restoration of XXXXXXXXXX. These restoration charges are shared among all users of XXXXXXXXXX. The restoration charge is not dependent in whole or in part on the use to be made of, or the benefit to be derived from, XXXXXXXXXX, or on sales or profits.
19. XXXXXXXXXX will not be granted a license under patent or any other intellectual property right whatsoever with respect to the use of XXXXXXXXXX.
20.
XXXXXXXXXX.
21.
XXXXXXXXXX.
XXXXXXXXXX.
Purpose of the Proposed Transactions
XXXXXXXXXX.
Rulings
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:
A. The payment of the purchase price of the XXXXXXXXXX is not a "rent, royalty, or similar payment" for the purposes of the preamble to paragraph 212(1)(d) of the Act and is not a service described in subparagraph 212(1)(d)(iii).
B. The payment of the O&M costs does not constitute a "rent, royalty, or similar payment" for the purposes of paragraph 212(1)(d) of the Act and is not a service described in subparagraph 212(1)(d)(iii).
C. The payment of the purchase price of the XXXXXXXXXX will be subject to subsection 18(9) of the Act.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 issued by Revenue Canada, Customs, Excise and Taxation on December 30, 1996 and are binding provided that XXXXXXXXXX enters into the XXXXXXXXXX Agreement with XXXXXXXXXX (as described in paragraph 15 of the Proposed Transactions) by XXXXXXXXXX.
The above rulings are based on the act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
We wish to emphasize that the above ruling is based on an interpretation of the provisions of the Act and should not be construed as having any impact on XXXXXXXXXX obligation to withhold under the Act. Any authorization not to withhold must be sought from the responsible Taxation Services Office.
Nothing in this ruling should be construed as implying that Revenue Canada Customs, Excise and Taxation has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1997
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© Sa Majesté la Reine du Chef du Canada, 1997
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