17 December 1984 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.

XXXX

                                                   B. Fioravanti 
                                                  (613) 995-1767

December 17, 1984

Dear Sir:

This is in reply to your letter of September 7 requesting our interpretation of the effective rate of "branch tax" provided by Section 219 of the Income Tax Act in light of the 1960 Canada - U.S. lax Convention.

You raise the question that in view of the provisions of Subsection 11(4) ITAR and in view of the intention to equate the rate of branch tax to the rate of dividends paid by a subsidiary to its parent, will the provisions of Subsection 11(4) ITAR and the relevant provisions in the new Convention be interpreted to permit a reduction ire the branch tax from 15% to 10% from October 1, 1964 to the effective date of paragraph 6 of Article X of the new Convention (being the first fiscal year of the payer non-resident corporation commencing on or after January 1, 1985): or, does the fact that any additional tax is limited by paragraph 6 of Article X of the new Convention to 10% result in Subsection 11(4) ITAR being inapplicable notwithstanding the fact that the limitation contained in paragraph 6 of Article h of the new Convention does not have effect in respect of the taxation year in respect of which the branch taxes are required to be paid where such taxation year did not commence on or after January 1, 1985?

We agree with your latter analysis that the branch tax will not be reduced to 10% prior to the period set out in paragraph 2(b) of Article XXX of the Convention. In our opinion, this is consistent with the intention of the paragraph that the branch taxes be effective with respect only to taxation years beginning on or after January 1, 1985.

We trust that this is satisfactory.

Yours truly,

ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR D.B. MORPHY

for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch