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.
DATE: March 5, 1984
TO - Mr. P. Pinkus Director Provincial and International Relations Division
FROM- Tax Avoidance and Foreign Operations Division H.A. Braeuel (996-9965)
RE: Article XXII of Canada-U.K. Income Tax Convention (1978)
We have a case on hand in which the branch operation of a Canadian bank in London is subjected to different taxation than U.K. banks.
1. Paragraph 2 of Article XXII is quite clear in that it would prohibit such practices. On the other hand paragraph 1, by reason of the wording "in the same circumstances", would appear to permit a non-resident to be taxed in a different manner and we find this to be contradictory. What is the policy intent?
2. Let us assume that discrimination is not permitted. In the case at issue certain branch income of the non-resident Canadian bank is not subject to U.K. tax while similar income of a U.K. bank is taxable. Clearly, there is no discrimination.
Conversely, a loss is not allowed to the non-resident bank while it would be allowable to a U.K. bank. This could be considered to be discriminatory.
When considering the question of discrimination it, therefore, depends on whether we consider the positive or negative income effect. Not taxing the income but also allowing a loss in this case would certainly be non-discriminatory for treaty purposes but would also be incompatible with U.K. tax law.
In determining whether discrimination exists for purposes of the treaty was it policy intent to only look at the taxation of income or was it also intended to consider the allowance of losses?
Please do not hesitate to contact us if further information is required.
Chief Competent Authority Operations Section Tax Avoidance and Foreign Operations Division Policy and Systems Branch
HAB/ro
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