27 April 1984 Income Tax Severed Letter RCT-0411 F

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.

XXX

This is in reply to your memorandum dated March 29, 1984 concerning the exigibility of Part XIII tax on management fees paid to a U.K. affiliate of the above-noted Canadian corporation.

The taxpayer had referred to a letter dated August 11, 1981 from this Directorate to XXX in support of the position that Part XIII tax is not exigible on management fees paid by XXX to a related U.K. company, XXX. The specific circumstances which you outlined to us are as follows:

XXX

Comments:

This will confirm that the opinion expressed in our August 11, 1981 letter will apply in the above circumstances provided that the U.K. corporation has no permanent establishment in Canada and does. In fact, provide the management services. Consequently, the management fees would form part of the U.K. company's business profits and would be exempt from Part XIII tax by virtue of Article VII of the Canada-U.K. Tax Convention (1978). (Unlike the Canada-US Tax Convention of 1942 the Canada-UK Convention does not exclude management charges from industrial and commercial profits.)

We would also like to point out that there is nothing in the Convention which would prevent us from looking at the reasonableness of the amount of the management fees claimed as a deduction by XXX pursuant to section 67. In fact there may be an argument that Article IX of the Convention would support this approach.

We hope these comments will be useful.