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 Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
SUBJECT: INTERNATIONAL TRAFFIC NETHERLANDS TREATY SECTION: ART 8]
913411
XXX T.B. Kuss
(613) 957-2117
Attention: XXX
May 28, 1992
Dear Sirs:
Re: Canada-Netherlands Income Tax Convention (1986) (the "Netherlands Convention")
This is in response to your letter dated November 21, 1991 regarding the Shipping and Air Transport provisions of the Netherlands Convention.
It is our view that paragraph II of the Protocol to the Netherlands Convention does not apply to aircraft. Paragraph 1(g) of Article 3 of the Netherlands Convention defines "international traffic" as "any transport by a ship or aircraft operated by an enterprise which has its place of effective management in one of the States, except when the ship or aircraft is operated solely between places in the other State." In our opinion this determination should be made on a voyage-by-voyage basis. When an aircraft is being operated by an enterprise which has its effective management in the Netherlands to transport passengers or goods solely from one point in Canada to another point in Canada, that transportation would not come within the meaning of "international traffic" in the Netherlands Convention.
If the aircraft transports passengers or goods from point A in Canada, continues on to point B in Canada where it partially unloads and then continues on to a point in the United States where the rest of its load is delivered, the entire voyage would come within the meaning of "international traffic".
Rental payments pertaining to the use of an aircraft in Canada during voyages that do not constitute "international traffic" are not exempt from Canadian taxation unless the provisions of paragraph 2(c) of Article 8 of the Netherlands Convention are met.
However we point out that Department of Finance release dated December 6, 1991 proposes that the Income Tax Act be amended to exempt from withholding tax arm's length lease payments on contracts entered into after 1990 for the lease of aircraft used in domestic flights.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental Affairs Branch
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