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.
November 29, 1984
K. B. Harding
XXXX
Dear Sirs:
This is in reply to your letter of September 18, 1984, concerning Article XXX of the Canada-United States Income Tax Convention (Convention).
You are concerned with a branch of a United States corporation operating in Canada with a February 28 year end and paying a dividend on or after October 1, 1984. Since the Canadian subsidiary paying dividends on October 1 or later would be subject to 10 per cent withholding tax, you question whether the branch tax should be reduced to 10 per cent for the year ending on February 28, 1985.
It would appear that paragraph 2(b) of Article XXX intended for the branch tax to be effective with respect only to taxation years beginning on or after January 1, 1985. We have also reviewed ITAR 11(4) of the Income Tax Application Rules, which generally decreases the rate of branch tax to a rate equal to the rate withheld on dividends. However, since paragraph 6 of Article X of the Convention limits the rate of additional tax to 10 per cent of branch earnings, we are of the view that the requirement of subparagraph 11(4)(a) has not been met and, accordingly, the branch tax will not be reduced to 10 per cent prior to the period set out in paragraph 2(b) of Article XXX of the Convention.
We hope that this is satisfactory for your purposes.
Yours sincerely,
Director Provincial and International Relations Division
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© Her Majesty the Queen in Right of Canada, 1984
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