18 April 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.

April 18, 1984

The Director Corporate Rulings Revenue Canada, Taxation 875 Heron Road Ottawa, Ontario K1A 0L8

Dear Sir:

We are writing to obtain your confirmation of our views as to the proper interpretation of a provision of the Canada-U.K. Tax Convention ("the Treaty"). Since the situation which we pose herein is hypothetical, a formal ruling is not appropriate at this time.

Hypothetical Facts

1. Corporation A, a U.K. corporation, owns all of the outstanding shares of Corporation B. Corporation A is not resident in Canada, does not have a permanent establishment in Canada and does not carry on a business in Canada.

2. Corporation B was incorporated in Canada after April 26, 1965 and carries on business in Canada.

3. Corporation B now desires to cease all activity in Canada and is proposing to sell all of its Canadian operations.

4. After all of the surplus has been remitted to Corporation A by way of dividends, Corporation B will transfer its effective mind and management to the U.K.

5. The fair market value of any assets remaining in Corporation B would be equal to or less than the paid-up capital of Corporation B. Such assets would have no appreciation potential.

6. Since Corporation B will have no assets in excess of paid-up capital, no Canadian income tax would be exigible under Section 219.1 of the Income Tax Act in these circumstances. In fact, no Canadian tax advantage would arise on the corporate emigration of Corporation B.

Issue

Pursuant to paragraph 1 of Article IV of the Treaty, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, or any other criterion of a similar nature. Unlike the proposed Canada-U.S. Tax Convention, the Treaty contains no specific reference to place of incorporation. In our view, the phrase "any other criterion of a similar nature" would not include, for Canadian tax purposes, the place of incorporation. This view is reinforced by our understanding that Canada was unable to obtain the agreement of U.K. tax authorities to the incorporation of the term "place of incorporation" in paragraph 1 of the Treaty.

We would appreciate, however, your concurrence with our interpretation of the Treaty in this regard.

Should you require an additional information or explanation relative to the above, please contact XXXX

Yours very truly,

XXXX