3 September 1999 External T.I. 9823675 - FTC FOR QATAR INCOME TAX

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: Whether tax paid to Qatar is an income or profits tax

Position: Yes

Reasons: Based on the law of Qatar provided by the client, we found nothing to indicate that the tax is not an income or profits tax

XXXXXXXXXX 982367
S. Leung
Attention: XXXXXXXXXX

September 3, 1999

Dear Sirs:

Re Foreign Tax Credit

We are writing in reply to your letter in which you requested our view as to whether taxes paid under the Decree-Law No. (11) of Year 1993 Concerning The Income Tax of the State of Qatar and the Regulations related thereto (collectively referred to as the “Qatar Tax Law") by a resident of Canada or his foreign affiliate (individually referred to in this letter as the "Taxpayer") qualifies as an income or profits tax for the purposes of section 126 of the Income Tax Act (the "Act") or an underlying foreign tax within the meaning of that term described in subsection 5907(1) of the Income Tax Regulations (the "Regs"). In this regard, you provided us with a copy of the translation of the Qatar Tax Law. You also stated during our telephone conversation (XXXXXXXXXX/Leung) that the Taxpayer is not involved in the business of exploration for or exploitation of oil and gas or other natural resources in the State of Qatar and there is no production sharing agreement or any agreement between the Taxpayer and the State of Qatar, its representative or a subdivision of the State of Qatar with respect to the business activities carried on by the Taxpayer in the State of Qatar.

It is our understanding that under the Qatar Tax Law the State of Qatar imposes a tax on all foreign companies, including partnerships and joint venture, carrying on business activities in the State of Qatar. Tax is imposed on a foreign entity operating in the State of Qatar regardless of whether it operates through a branch or in a joint venture with a locally registered company. For a company with Qatari and foreign shareholders, tax is imposed only on the profits attributable to the foreign shareholders. Qatar citizens' shares in the profits of that company are exempt from Qatar tax. Under the Qatar Tax Law, profits are determined after allowable deductions have been deducted from gross income. Allowable deductions include interest, rents, salaries, wages, taxes other than income taxes, bad debts, repairs and maintenance, depreciation, losses on sale of assets, and donations.

Pursuant to Article 21 of the Qatar Tax Law, a five to ten year tax holiday may be granted to a foreign person for certain projects, regardless of whether they are performed by Qataris or foreigners. Although a foreign person may be granted a tax holiday, under the Qatar Tax Law he is still required to file annual tax returns claiming all statutory deductions (e.g. depreciation).

Our Comments

We have found nothing from the information that you provided to us that would suggest that the tax paid under the Qatar Tax Law is not an income or profits tax for the purposes of section 126 of the Act or an underlying foreign tax within the meaning of that term described in subsection 5907(1) of the Regs even though only foreigners of the State of Qatar are subject to such tax. Therefore, in our opinion, the tax paid by the Taxpayer under the Qatar Tax Law would likely be considered an income or profits tax or an underlying foreign tax, as the case may be, for the purposes of section 126 of the Act and subsection 5907(1) of the Regs.

With respect to a foreign affiliate of a Canadian resident corporation where the foreign affiliate has Qatari shareholders, we do not have sufficient information to offer any comments as to the manner of how to apportion the underlying foreign tax in respect of dividends paid out of the taxable surplus of the foreign affiliate operating in Qatar.

As stated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, the opinion expressed above is not a ruling and is consequently not binding on the Department.

Yours truly,

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