21 May 1992 Roundtable, 9215240 F - Branch Tax And Partnerships

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.

Prepared by:  Tim Kuss

Date:  May 21, 1992

Vancouver Round Table

Branch Tax

Fact Pattern

1.      Mr. A and Mr. B are individuals who are citizens of and resident in the U.S.  Mr. A and Mr. B form a U.S. limited partnership.  The relevant partnership law is similar to that found in Canada.

2.      Under the U.S. Internal Revenue Code the partnership is taxed as a corporation.

3.      The partnership carries on business in Canada through a permanent establishment situated therein.

Question

Does the partnership have responsibility for Canadian branch tax under section 219 of the Income Tax Act?  Would the response be any different if the partners were U.S. corporations rather than individuals?

Department's Position

Liability for Canadian branch tax falls on corporations (other than Canadian corporations) that carry on business in Canada.  When determining whether a particular foreign organization is a corporation one must look to the foreign law under which it is organized.  Where the organization has the attributes of a corporation as that term is understood under the law of Canada it will be treated as a corporation for Canadian tax purposes.  How that organization is treated for tax purposes in the jurisdiction in which it is organized is not determinative.  If the organization is otherwise a partnership, it will be treated as a partnership for Canadian tax purposes.   Where the entity is considered a partnership for Canadian tax purposes, its partners will be considered to carry on the business of the partnership.  If any of those partners are non-resident corporations, those partners will be liable for Canadian branch tax subject to any treaty relief.