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.
August 15th, 1986
Director Reorganizations & Non-Resident Division Specialty Rulings Directorate Legislative & Intergovernmental Affairs Branch Revenue Canada, Taxation Head Office Ottawa, Ontario K1A 0L8
Dear Sir,
CANADA - BRAZIL INCOME TAX CONVENTION (THE "TREATY")
Could you please confirm whether the following three assumptions are correct with respect to the above-captioned Treaty.
1. The deduction provided by paragraph 2 of Article 22 of the Treaty ("Treaty deduction") can be applied against Canadian income taxes on the income of the XXXX regardless of the source of the income. For example, if the Bank claimed the Treaty deduction based on the income from Brazilian loans booked in its XXXX this deduction is not restricted in application to only Canadian income taxes on the income from the Brazilian loans (or even from the Bank's business carried on in the XXXX).
2. If we assume that the Treaty deduction was claimed and it was based on the income from Brazilian loans booked in the Bank's XXXX branch and which is exempt from Brazilian withholding taxes, that same income can still be included in determining the amount of foreign tax credits with respect to business-income tax paid on income from the Bank's business carried on in the XXXX pursuant to subsections 126(2) and (2.1) of the Income Tax Act.
3. If the Treaty deduction were claimed by the Bank against Canadian income taxes, the deduction itself would not be subject to Canadian income taxes. Also, the deeming of Brazilian tax paid pursuant to paragraph 3 of Article 22 is for the purposes of the Treaty deduction, with the deemed amount not being subject to Canadian income taxes even though no Brazilian tax may have been paid.
While we realize the ramifications of these assumptions, your earliest response would be most appreciated as it has a direct bearing on the Bank's tax liability computation. Please do not hesitate to contact me at XXXX should you have any questions.
Yours sincerely,
XXXX
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© Her Majesty the Queen in Right of Canada, 1986
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© Sa Majesté la Reine du Chef du Canada, 1986
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