13 September 1989 Income Tax Severed Letter AC73881 - Transitional Relief under Canada-Netherlands Income Tax Convention

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.

September 13, 1989

International Audits Division                Specialty Rulings
                                               Directorate
S. Claude Lemelin, Chief                     M. Vallée
Policy and Research Section                  957-2093

Attention: Clayton Davis

Subject:  Article 30-3 of the Canada-        7-3881
          Netherlands Income Tax Convention
          (1986) (the "Convention") - Provision
          for Transitional Relief

This is in reply to your memorandum, dated May 5, 1989, wherein you requested our opinion as to whether a non-resident corporation, which has filed a Canadian income tax return for the first time, is entitled to select a taxation year which will permit exemption from Canadian tax under the "greater relief" rule enacted under article 30 paragraph 3 of the Convention.

A summary of the facts is as follows:
                          24(1)

We understand that transitional relief would not be available
under Article 30 of the Convention if    24(1)    was required to
report its gain by filing for the 1988 calendar year or for the
fiscal period it habitually uses in the Netherlands. You have
considered the definition of "fiscal period" at subsection 248(1)
of the Act and of "taxation year', at subsection 249(1) of the
Act, however, and you are of the opinion that the fiscal period
selected    24(1)        to file in Canada is acceptable.

Our Comments

Article 13 sub-paragraph 4 (a) of the Convention stipulates that the capital gain realized on the sale of the shards can be taxed in Canada, whereas by virtue of Article XVII of the Canada-Netherlands Income Tax Agreement Act, 1957, (the "Former Convention") such a gain would have been taxable only in the Netherlands. By virtue of paragraph 3 of Article 30 of the Convention, any provisions of the Former Convention that would have afforded any greater relief from tax shall continue to have effect for any taxation year beginning before the entry into force of the Convention. Paragraph 249(1)(a) of the Act defines the taxation year of a corporation as its fiscal period. Subsection 248(1) of the Act defines "fiscal period" as meaning

          "The period for which the accounts of the business of
          the taxpayer have been ordinarily made up and accepted
          for purposes of assessment under this Act(...)"

The Convention entered into force on August 21, 1987, and 24(1) chose August 1, 1987 as the beginning of its fiscal period.

Provided that it has not filed a tax return in Canada for any previous taxation year, 24(1) had the right to select that date as the start of its fiscal period, and would consequently have had the right to claim the relief provided by the Convention regarding the gain derived from the sale of the shares of its subsidiaries, which gain would otherwise have been included in its income under subsection 115(1) of the Act.

Chief Corporate Reorganizations 1 Section Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch