7 October 1991 Income Tax Severed Letter - Meaning of \"International Traffic\" in Canada - Netherlands 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.

Subject: Meaning of "International Traffic" in Canada - Netherlands Income Tax Convention, 1986

The term "international traffic" is defined by paragraph 1(g) of Article 3 and Paragraph II of the Protocol to the Convention.

Looking at paragraph 1(g) of Article 3 alone, the issue is - what period of time or context is to be considered in determining whether "the ship or aircraft is operated solely between places in the other State". In effect there is a need to add some words to limitation in the postamble to paragraph 1(g) in order to make sense of the words and permit them to have application.

The beginning of paragraph 1(g) of Article 3 defines "international traffic" by reference to "any transport". Having regard to this context and direction that reference should be had to each "transport", it is submitted that the period of time or context to be considered in determining whether "the ship or aircraft is operated solely between places in the other State" is in respect of "each transport", i.e. each carriage. It is thus submitted that the appropriate words to be implied as being in the postamble of paragraph 1(g) are the following underlined words:

"except when in respect of such transport the ship or aircraft is operated solely between places in the other State."

In connection with the interpretation/definition of the term "international traffic" in the Canada-Netherlands Convention reference must also be made to Paragraph II of the Protocol. It is submitted that neither Paragraph II of the Protocol nor paragraph 1(g) of Article 3 should be read alone or applied individually and separately from the other (as another separate test to be met), but rather that paragraph 1(g) of Article 3 and Paragraph II of the Protocol must be read together and constitute a unified single test/definition.

Paragraph II of the Protocol provides that vessels, when so operated, shall not be considered to be operated in international traffic. "When so operated" refers to when, in their operation, the vessels are "devoted principally" to transportation between places in one of the States. Again, as with paragraph 1(g) of Article 3, it is necessary in respect of Paragraph II of the Protocol to determine the period of time or context to be considered in determining whether the vessel is "devoted principally to the transportation of passengers or goods exclusively between places in one of the States". It is submitted that reading Paragraph II of the Protocol together with paragraph 1(g) of Article 3 leads to the conclusion that the period of time or context to be considered is "during the operation of the vessel in respect of each transport" and that in this context "devoted principally" is synonymous with "the principal purpose" of the operation of the vessel. Therefore, reading paragraph 1(g) of the Article 3 and Paragraph II of the Protocol together, the definition of "international traffic" is synonymous with the following:

"the term "international traffic" means any transport (i.e. carriage of persons or goods) by a ship or aircraft operated by an enterprise which has its place of effective management in one of the States, except where the principal purpose of the operation of the ship or aircraft in respect of such transport (e.g. except where the principal purpose of the voyage) is to transport passengers or goods between places in one of the States."

Thus the definition of the term "international traffic" in the Canada-Netherlands Convention is in effect virtually the same as the definition in the Canada-United States Income Tax Convention, 1980.