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: December 27, 1978
TO- Non-Corporate Rulings Division
FROM- H.A. Braeuel Provincial and International Relations Division
ATTENTION Mr. R. Weil Section 4
RE: Proposed Canada-United Kingdom Income Tax Convention Your memo of December 14, 1978, J.E. Grisé
We have noted the point made by XXXX in paragraph 1 of his letter dated November 23, 1978. A strict interpretation of Article XVII 1 of the proposed treaty leads to the conclusion that in the event that the tax in the country of residence would be nil, the tax in the country of source would also have to be nil. This result reflects the policy behind this Article as it was felt that the total tax burden on a pensioner in respect of his pension income should never exceed that which he would have to bear in his country of residence.
More specifically, we have discussed the point made by XXXX with officials of the Department of Finance. Accordingly, it is not policy intent that pension funds transferred from a pension plan in Canada to a similar plan in the United Kingdom should be exempt from Canadian withholding tax, although the formula might produce such a result because there are no immediate tax consequences in the United Kingdom.
In order to produce the desired policy effect Finance thinks we should interpret the Article as follows:
Where pension funds are transferred from a plan the beneficiary under the plan should be considered to be the transferee and not the pension plan in the United Kingdom. The transferee (employee), of course, may not be subject to tax in the United Kingdom if he did not receive the funds, but nevertheless, for purposes of Article XVII I we should establish the taxes that would be chargeable if the transferee were subject to tax. The hypothetical tax so computed will then be used to determine the extent of Canadian taxation under the Article.
Finance admits that the above reasoning is very weak. Since there are other provisions in the treaty which are either vague or simply do not produce the desired effect, it is planned to "redefine" certain of the provisions in the foreseeable future. Therefore, if you have any difficulties in interpreting the provision along the above-noted lines, please let us know.
Acting Director Provincial and International Relations Division
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