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.
Dear Sirs:
Re: Paragraph 212(1)(a)
This is in reply to your letter dated January 19, 1990 whereby you requested our comments regarding the application of paragraph 212(1)(a) of the Income Tax Act (Canada) (the "Act") to payments made by a Canadian subsidiary to its foreign Parent under a service contract whereby certain specific activities relating to the Canadian subsidiary's business of providing extended warranties on automobiles will be performed by the Parent.
Generally, it is our opinion that operational, functional, line activities are not services of the kind that the fee paid therefore will be considered to be a "management or administration fee or charge", whereas a fee paid for services constituting the performance of "staff" functions is a "management or administration fee or charge". It appears to us that the services to be provided by the Parent in the example outlined in your letter, namely the handling of claims under extended warranties issued by the Canadian subsidiary, the assessment of such claims, the paper work involved in such claims, and arranging for repairs to be performed in satisfaction of the warranties, are operational, functional, line activities.
If Part XIII of the Act does not apply to the payments by the Canadian subsidiary to the non-resident Parent, withholding in respect of the payments will nevertheless be required pursuant to Regulation 105 if the services are rendered by the Parent in Canada. We also note that if the Parent is carrying on business in Canada it will be subject to tax liability under Part I of the Act.
The opinions expressed herein are not advance income tax rulings and are not considered binding on the Department in accordance with paragraph 24 of Information Circular 70-6R dated December 18, 1978.
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© Her Majesty the Queen in Right of Canada, 1990
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© Sa Majesté la Reine du Chef du Canada, 1990
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