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:
(i) Whether certain offshore trusts are resident in Canada where the trustee is a Canadian resident corporation which carries out all its trustee functions through an offshore branch or branches and which delegates most of the administrative functions to its foreign affiliate corporations; (ii) whether fees paid by the offshore trusts to a non-resident pertaining to the administration of the trusts are subject to Part XIII tax; and (iii) whether fees regarding marketing and promotion paid by the trustee to a non-resident is subject to Part XIII tax.
Position:
(i) No provided the offshore trusts are established and operated in the manner as described in the letter and the residence status of the beneficiaries and the location of the assets of the trusts are such as described in the letter. (ii) No. (iii) No..
Reasons:
(i) In certain unique situations it is our administrative policy as described in paragraph 7 of IT-447 to consider the trusts to be resident in the jurisdiction of the offshore branch of the trustee if the control and management of the trusts are exercised by that offshore branch. (ii) The fees are paid by non-residents to non-residents. (iii) Where the fees are determined in the manner as described in paragraph 12 of the letter, paragraph 212(1)(d)(iii) of the Act would not apply to such fees.
XXXXXXXXXX 991269
S. Leung
Attention: XXXXXXXXXX
December 23, 1999
Dear Sirs:
Re: Residency of Certain Offshore Trusts
We are writing in response to your request for an opinion in respect of the residency status of certain offshore trusts and the withholding requirements of these trusts and their trustee for payments made to non-residents as described in the following situation.
The situation you presented to us is described as follows:
1. Xco was incorporated XXXXXXXXXX for the purpose of providing trustee services outside Canada to clients of Yco and its affiliated corporations. Neither Yco nor its affiliate corporations other than Xco (referred to herein below collectively as the "Yco Affiliates" and individually as a "Yco Affiliate") are resident in Canada. Yco owns all the issued and outstanding shares of Xco.
2.
XXXXXXXXXX
3. Xco is managed by a board of directors consisting at all times of at least XXXXXXXXXX directors. Only one of such directors is resident in Canada. All meetings of the board of directors are held outside Canada, and all decisions made by signed resolutions of the directors are executed outside Canada. The board of directors' powers are not delegated to any managing director who is resident in Canada or to any committee of directors the majority of whom are resident in Canada.
4. Xco conducts its activities in the manner described below unless there are reasonable grounds for believing that an emergency condition exists, XXXXXXXXXX. Where such grounds exist, Xco may administer in Canada the offshore trusts described below, and the assets of such trusts may be relocated to Canada.
5. Xco carries on the business of offering trustee services outside Canada. It has a registered office in Canada but it does not conduct any trustee, promotional or marketing activities in Canada. The only activities that Xco conducts in Canada are administrative 'housekeeping' activities such as its corporate, tax and, if necessary, regulatory filings. It does not carry on any other activities in Canada.
6. Xco acts as a trustee under trusts (individually referred to herein as an "Offshore Trust" and collectively as the "Offshore Trusts") settled only by individuals who are not resident in Canada and who do not contemplate becoming resident in Canada. Xco is the sole trustee or a co-trustee with one or more co-trustees who are not resident in Canada. All or substantially all of the assets of each Offshore Trust are situated outside Canada. All or substantially all of the beneficiaries of each Offshore Trust which is a non-discretionary trust within the meaning assigned under subsection 17(15) of the Income Tax Act, whose beneficial interests in the Offshore Trust comprise all or substantially all of the value of all beneficial interests in the trust, are not resident in Canada. All of the beneficiaries of each Offshore Trust other than a non-discretionary trust are not and will not be resident in Canada. The 'Protectors', if any, appointed to assist in managing the affairs of each Offshore Trust will not be resident in Canada and all the meetings and deliberations of the Protectors will take place outside Canada.
7. Xco will establish a branch office (a "Branch") in one or more jurisdictions outside Canada in which Yco or a Yco Affiliate has a presence. Yco or a Yco Affiliate will second full or part time staff to Xco and make available office premises for the Branch or Branches. This staff will make decisions on certain policy matters such as the acceptance of trust mandates, preparing the agenda for Xco board meetings, making decisions on variations to standard trust documentation and distributions and trust dissolutions. One or more officers or employees of Xco who are not resident in Canada will carry out their trustee duties in respect of the Offshore Trusts at such Branch or Branches. No such duties will be carried out in Canada. Discretionary dispositive trustee decisions with respect to, among other things, the distribution of trust property to the beneficiaries required to be made by Xco in respect of each Offshore Trust will be made at a Branch by one or more officers or employees of Xco who are not resident in Canada.
8. Xco will delegate all or some of its trustee duties, including those described in 9 below but other than those described in 7 above, in respect of each Offshore Trust to Yco or a Yco Affiliate who will not carry on any activities in Canada. Any trustee duties that will be performed by Xco will be rendered by its Branch or Branches outside Canada.
9. In particular, Xco will enter into a master Administration Services Agreement (the "Administration Agreement") with Yco or a Yco Affiliate ("Serviceco") pursuant to which Xco will agree, as trustee of each Offshore Trust, to contract, on behalf of each Offshore Trust to be formed, for the provision of trust administration services by Serviceco (the "Trust Administration Services"). It is expected that the Trust Administration Services will include secretarial, collection and remittance of funds, the preparation of trust and transactional documentation, safekeeping of documentation, establishing companies for the trusts (where required), providing tax advice, opening bank accounts, overseeing asset allocation, providing general administrative services, reviewing trust accounts, dealing with queries related to the trusts, drafting trustee resolutions, invoicing the trusts, requesting legal advice regarding trust matters, providing continuing planning advice, implementing distributions to beneficiaries and reviewing requests regarding changes in investment strategies (including relevant administration).
10. Serviceco will charge Xco, as trustee of each Offshore Trust, fees (the "Trust Administration Fees") for providing the Trust Administration Services. Payments of the Trust Administration Fees will be made from the funds of each Offshore Trust directly to Serviceco and will be deducted from the income of each Offshore Trust for accounting purposes. Serviceco may charge as the Trust Administration Fees (i) an acceptance fee based on time spent and disbursements, an annual administration fee on a sliding scale based on the value of assets under administration and a withdrawal fee based on time spent and disbursements, or (ii) fees agreed to by the settlor of a particular Offshore Trust.
11. Xco, as trustee of a particular Offshore Trust, will also enter into a custody and investment management agreement with Yco or a Yco Affiliate, which will provide its services outside Canada to the Offshore Trust for fees (the "Custody and Investment Management Fees"). The Custody and Investment Management Fees will be paid by Xco, as trustee of a particular Offshore Trust, from the funds of the Offshore Trust directly to Yco or the Yco Affiliate and will be deducted from the income of the particular Offshore Trust for accounting purposes.
12. Xco, acting on its own behalf and not as trustee of an Offshore Trust, will engage a Yco Affiliate to conduct promotional and marketing activities outside Canada. The fees paid by Xco for such services (the "Marketing and Promotional Fees") will be determined to be the sum of: (i) direct costs incurred by the Yco Affiliate based on actual time spent to provide such services; (ii) applicable overhead costs determined without any reference to the number of clients obtained for Xco or Xco's profits; and (iii) a reasonable mark-up.
13. The Offshore Trusts will not hold themselves out as being resident in Canada for the purposes of obtaining the benefits available to residents of Canada under any of Canada's international agreements pertaining to taxation.
14. The Canada Customs and Revenue Agency's published position in paragraph 7 of Interpretation Bulletin IT-447 dated May 30, 1980 is that where management and control of a trust is exercised by a branch office of a trust company, the trust may be considered to be resident in the jurisdiction where the branch office is located even though the trust company itself is resident in Canada.
Opinion
In our opinion:
(a) provided the Offshore Trusts are established and operated in the manner described in this letter, the Offshore Trusts will be considered to be persons who are not resident in Canada for the purposes of the Act;
(b) provided the Offshore Trusts are not resident in Canada:
(i) the Trust Administration Fees paid by the Offshore Trusts to Serviceco as described in paragraph 10 above; and
(ii) the Custody and Investment Management Fees paid by the Offshore Trusts to Yco or a Yco Affiliate as described in paragraph 11 above;
will not be subject to tax under Part XIII of the Act.
(c) the Marketing and Promotional Fees paid by Xco to a Yco Affiliate as described in paragraph 12 above will not be subject to tax under Part XIII of the Act.
As stated in paragraph 22 of Information Circular 70-6R3 dated December 30, l996, the opinions expressed in this letter are not rulings and are consequently not binding on the Canada Customs and Revenue Agency.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
??
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1999
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1999
Email this Content