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
August 2, 1988
Mr. Ken Major Chief, Foreign Section Specialty Rulings Directorate Legislative and Inter-Governmental Affairs Branch Revenue Canada, Taxation 875 Heron Road Ottawa, Ontario K1A OL8
Dear Sir:
RE: REQUEST FOR AN OPINION ON BEHALF OF XXXX ("THE BANK")
Further to XXXX letter to you of August 1, 1988, it would be appreciated if you could also address one other similar situation in the course of your reply to her on the question of whether there would be Canadian withholding tax exigible on interest paid by a U.K. branch of the Bank to a U.K. subsidiary of the Bank.
The basic facts and circumstances would be the same as in the question posed by XXXX except that, in this case, the interest income earned by the U.K. subsidiary on the deposit would not be business income but instead income from property subject to the foreign accrual property income rules.
Our analysis is that the interest payments received by the U.K. subsidiary would also be free of Canadian withholding tax in such a case since they would constitute "profits" as referred to in the opening line of Article VII of the Canada/U.K. Income Tax Convention. As we see it, Article VII of the Convention operates to preclude Canadian taxation of any profits other than profits attributable to a Canadian permanent establishment. Because such attributable profits would be business profits, Article VII uses the heading "Business profits" but Article VII still operates to prevent Canadian taxation of profits that are in the nature of income from property. Therefore, since the interest income constitutes "profit" of the U.K. subsidiary and is not attributable to a Canadian permanent establishment, then the Convention should apply to prevent Canadian withholding tax from being applied to the interest payments.
We look forward to your confirmation of our view on this matter as well as on the related question posed by XXXX in their letter to you of August 1, 1988. Please direct your reply to XXXX
Yours truly,
XXXX
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