11 March 1988 Income Tax Severed Letter

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.

March 11, 1988

To Mr. R.J.L. Read Director General Specialty Rulings Directorate

FROM DE Provincial and International Relations Division R.A. Primeau 957-2073

ATTENTION: Mr. M. Carsley Foreign Section

SUBJECT: OBJET: TREATMENT OF A "STICHTING" UNDER THE CANADA - NETHERLANDS TREATY

FILE DOSSIER HBW 4125-N1 HBW 4125-U3-2(Art. IV)

This is in reply to your memorandum of December 3, 1987. The issues which you have outlined pertain to an entity referred to as a "Stichting". In his letter to you of September 11, 1987, XXXX gives the following information about a Stichting:

XXXXXXXX has asked for your opinion on whether a Stichting should be considered to be a resident of the Netherlands for purposes of the Canada - Netherlands Income Tax Convention, 1986 (the Canada - Netherlands treaty), pursuant to Article 4 thereof, if it is exempt from Dutch tax by virtue of its not carrying on a business or trade. It is XXXX position that a Stichting should be so considered to be a resident of the Netherlands for purposes of the Canada - Netherlands treaty by virtue of Article 4 thereof because it is first and foremost generally liable for tax in the Netherlands by virtue of its residence (as established by its "mind and management") in the Netherlands but then is exempted from such tax as a result of its stats as a pension fund that does not carry on a business or trade. XXXX indicates that if a Stichting does carry on a business or trade, it loses its tax- exempt status and becomes fully liable to pay Dutch tax by virtue of its residence in the Netherlands.

We understand that you basically agree with XXXX position. In our view, this would be essentially consistent with a verbal indication given to us by Mr. Short of the Department of Finance that he has no difficulty in considering a pension plan which is exempt from taxation in the country in which it resides, to be a resident of that country and entitled to the benefit of provisions, in that country's income tax convention with Canada (if any), that are favourable to residents of that country.

The second issue on which you have asked for our view is whether, for the purposes of the Canada - Netherlands treaty, a Stichting is a company. Article 3 of the treaty defines company, for purposes of the treaty, as "any body corporate or entity which is treated as a body corporate for tax purposes".

If you accept this position, a Stichting which owns more than 25% of the capital of a company resident in Canada will be allowed the reduced rate of withholding tax on any dividends paid to it as provided for in Article 10(2)(a) of the Canada - Netherlands treaty. You point out that the OECD Model uses the identical wording as the Canada - Netherlands treaty in defining a company.

It is our view that this issue is essentially a legal one. That is, if our legal counsel advises that a Stichting is a "body corporate", or if it would be taxed under the Netherlands Act as a body corporate should it lose its tax exempt status by carrying on a business (which XXXX indicates would be the case), we do not think that such an entity could be denied the advantage provided by Article 10(2)(a) of- the treaty.

R.G. D'Aurelio Director Provincial and International Relations Division