23 October 1989 Internal T.I. 58199 F - Canada-U.S. 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.

October 23, 1989

Dear sirs:

Re:  Subparagraph 3(d) of Article XI of the Canada-U.S.  Income Tax Convention (1980) (the "Convention")

This is in reply to your letter dated July 24, 1989 regarding the above-referenced matter.

Subparagraph 3(d) of article XI the Convention provides that interest arising in a Contracting State shall be exempt from tax in that State if:

     "the interest is beneficially owned by seller who is a resident of the other Contracting State and is paid by a purchaser in connection with the sale on credit of any equipment, merchandise or services, except where the sale is made between persons dealing with each other not at arm's length;"

You have asked for our views as to whether the word "seller" in the above mentioned provision can be interpreted to include the assignees of the seller who hold the purchase money paper created in connection with "a sale on credit of equipment, merchandise or services" made at arm's length if

a)     the assignment is contemporaneous with or subsequent to such a sale, or

b)     the assignment is made with or without recourse to the seller/assignor by the assignee.

In our opinion the word "seller" in paragraph 3(d)  of Article XI of the Convention means the original seller and would not include the assignee in either of the situations you have described.  If it were intended that the word "seller" include an assignee as described above it is our view that such an interpretation would have at least been outlined in the portion of the Technical Explanation of the Convention that discusses the meaning of Article XI.

We trust this information will be of assistance to you.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch