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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Does the term "value or the greater part of their value" mean more than 50%?
Position: Yes.
Reasons: Ordinary meaning of the term.
XXXXXXXXXX 2003-000199
T. Cook
April 8, 2003
Re: Technical Interpretation Request
Dear XXXXXXXXXX:
We are writing in reply to your letter of February 6, 2003, in which you requested our interpretation of the term "value or the greater part of their value" as used in paragraph 5(a) of Article 13 of the Canada-United Kingdom Income Tax Convention (1978) (the "Convention"). In particular, you query whether this term means "more than 50 percent", which is the meaning ascribed by the U.S. Treasury Department's Technical Explanation, to the word "principally" as used in paragraph 3(b) of Article XIII of the Canada-U.S. Income Tax Convention (1980).
Paragraph 5(a) of Article 13 of the Convention provides that gains from the alienation of:
shares, other than shares quoted on an approved stock exchange, deriving their value or the greater part of their value directly or indirectly from immovable property situated in a Contracting State or from any right referred to in paragraph 4 of this Article,
may be taxed in that State. We note that neither the term "value or the greater part of their value" or any portion of the term is defined in the Convention. Similarly, no particular meaning is mandated by section 3 of the Income Tax Conventions Interpretation Act. Paragraph 1 of Article 31 of the Vienna Convention on the Law of Treaties does provide that:
A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
From an ordinary meaning perspective, the term "greater part" infers a comparison between two parts to determine which one is the greater, or larger, part. This means the value of the share being alienated is notionally split into two parts - the part of its value derived from immovable property situated in the Contracting State or from a right referred to in paragraph 4 of Article 13, and the part of its value derived from all other sources. If the part of the share's value derived from immovable property or a right is the larger of the two parts (i.e., more than 50% of the value of the share), then paragraph 5(a) would apply. The paragraph would not apply if the part of the share's value derived from immovable property or a right is the lesser or an equal part (i.e., 50% or less of the value of the share).
This approach is consistent with the limited Canadian and British jurisprudence that uses, or considers the meaning of, the term "greater part". For example, in Bromley v. Tryon (1951), [1952] A.C. 265 at 276 (H.L.), Lord Simonds L.C. stated that "I will add that 'greater part' means anything over one-half." Therefore, it is our view that the term "value or the greater part of their value" as used in paragraph 5(a) of Article 13 of the Convention generally requires that more than 50% of the value of the shares being alienated be derived from immovable property or a right referred to in paragraph 4 of Article 13, in order for paragraph 5(a) to apply.
We trust that these comments will assist you. They have been made in accordance with paragraph 22 of Information Circular IC 70-6R5 and as such are not binding the Canada Customs and Revenue Agency.
Yours truly,
Jim Wilson
Section Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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