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 10, 1986
Mr. George Fullarton Director General Rulings Directorate Revenue Canada Taxation 875 Heron Road Ottawa, Ontario K1A 0L8
Dear Mr. Fullarton:
We are writing to request your interpretation of Article XXVII(2) of the Canada-U.K. Tax Convention in the following hypothetical situation.
1. Mr. A is a non-resident of Canada and is a resident of the U.K. for U.K. tax purposes but is not domiciled or ordinarily resident in the U.K. Therefore for U.K. tax purposes he is taxed on a remittance basis in respect of investment income earned outside the U.K.
2. Mr. A is a shareholder of company B, a taxable Canadian corporation resident in Canada. Company B pays a dividend to Mr. A which is remitted by Company B to a bank account that Mr. A retains which is outside of both Canada and United Kingdom. Assume for U.K. tax purposes that Mr. A is not taxed on this income since it is not remitted to him.
We are writing to enquire whether Article XXVII(2) of the Canada-U.K. Tax Treaty would impose a 25% Canadian withholding tax rate on dividends paid by company B or whether Article X would apply and therefore the withholding tax rate would be 15%.
In our view, an argument could be made that the words "relieved from tax in a contracting State" in the first and second lines of Article XXVII(2) refer to a situation where tax in the host country (in this case Canada) is eliminated or reduced to nil rather than simply a partial reduction (as in this case from 25% to 15% by virtue of Article X). If our interpretation is correct, then Article XXVII(2) would appear to have no application to this particular situation and the normal provisions of Article X would apply and therefore the withholding tax rate would be 15%.
We would appreciate your interpretation of this Article XXVII(2)in this situation.
We thank you for your assistance.
Yours very truly,
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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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