6 February 1990 Income Tax Severed Letter ACC8732 - Security Lending - Exemption under Tax Agreement with U.k

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.

February 6, 1990

Mr. M.A. Hiltz Provincial and International
Director Relations Division
Re-Organizations and J. Wilson
Non-Resident Division 957-2063

Attention: Ken Major EACC8732
Chief, Foreign Section

24(1) - SECURITY LENDING REVENUE
CANADA - UNITED KINGDOM INCOME TAX CONVENTION

We are writing in regard to an interpretation of Article XI,
sub-paragraph 4(a) and paragraph 5 of the above-noted treaty.
24(1) has requested confirmation as to the tax
treatment of income received by the 24(1)
as compensation for Canadian Government Bonds loaned pursuant to
a securities lending arrangement. 24(1) is
of the opinion that the treaty exempts this income from Part XIII
tax (copy of letter attached).

The investments involved in the securities lending arrangement
are Government of Canada debt obligations and thus possibly fall
within the parameters of subparagraph 4(a). The income to be
considered consists of both the interest paid on the bonds that
still goes to 24(1) pursuant to the
lending agreement and the lending fee itself. Since the
definition of interest in Article XI is "all-inclusive", domestic
law (i.e. Bill C-28 and securities lending legislation) may not
come into play.
The letter from the 24(1) also requests
the department's position on the same issue with respect to
sovereign immunity. We would prefer to solve the matter through
the treaty provision. If this is not possible, we will then
consider exemption pursuant to the Doctrine of Sovereign
Immunity. 19(1) is aware of our objective
and would be satisfied with an acknowledgement of treaty
exemption only.

Any comments you may have on the above would be appreciated.
19(1) would like to be contacted by the
Rulings officer assigned the file so as to provide more details.
If we can be of assistance, please do not hesitate to contact us.

C. Savage
A/Director
Provincial and International
Relations Division

Attachment

Document Disclosed Pursuant to the Access to Information Act Document Divulgué en vertu de la loi sur l'accès à l'information