15 June 1999 External T.I. 9903035 - WITHHOLDING 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:

1. To confirm the tax consequences of 212(13.1)(b) in relation to 212(1)(b)(vii) in a specific situation.

2. Does the Department’s administrative position with respect to the look-through of the partnership for tax convention purposes would apply in such a situation.

Position:

1. The conditions of 212(1)(b)(vii) must be met by the partnership and not the investors.

2. The Department’s administrative position would not apply in such a situation.

Reasons:

Dispositions of the tax statute. It is a question of fact whether or not a corporation and a partnership deal at arm's length.

XXXXXXXXXX 						A. St-Amour, CA
							5-990303
Attention: XXXXXXXXXX 

June 15, 1999

Dear XXXXXXXXXX:

Re: Subparagraph 212(1)(b)(vii) and
paragraph 212(13.1)(b) of the Income Tax Act (the “Act”)

This is in response to your letter of February 4, 1999 requesting an interpretation of the above referred paragraph in a specific situation.

It appears that your inquiry relates to actual transactions that are proposed or completed. Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Service Office. Accordingly, since your situation appears to relate to a factual situation, we cannot provide any specific answer to your queries at this time. The following comments are, therefore, of a general nature only, are not binding on the Department and may not be appropriate in a particular circumstance.

Subsection 212(13.1) of the Act provides that where a person resident in Canada pays or credits an amount to a partnership of which one or more members are not resident in Canada, the partnership shall be deemed to be a non-resident person for purposes of Part XIII. Accordingly, if an amount paid or credited to such a partnership comes within the purview of any of the express provisions of Part XIII, the resident payer must withhold and remit tax in accordance with the rules of that Part unless one of the exemptions provided under subparagraph 212(1)(b)(i) to (xii) applies.

Subparagraph 212(1)(b)(vii) provides that Part XIII tax is not payable by a non-resident on interest received from a corporation resident in Canada if certain conditions are met.

One of the conditions requires that the non-resident must be dealing at arm’s length with the corporation. It is a question of fact whether or not a corporation and a partnership deal at arm’s length. Such a determination can only be made by an examination of relevant documents and legal relationships. Such a situation does not relate to the Canada-Us tax convention and, accordingly, the Department’s position, as stated in Questions 1 and 21 of the 1991 Conference Report and the 1996 Corporate Management Tax Conference, is not applicable.

As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, the above comments do not constitute an advance income tax ruling and are not binding on the Department. We trust the above comments will be of assistance to you. If you have any other questions, do no hesitate to contact us.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretation Directorate