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.
February 11, 1981
W.G. Pembroke
XXXX This is in response to your letter of January 12th concerning the application of the new Canada-U.K. Tax Convention to a hypothetical situation.
We have reviewed your submission and the applicable provisions of the Canada-U.K. Tax Convention and we are of the view that the Department would take the position that the Canadian subsidiary has a permanent establishment in Canada and the Canadian company should receive an allocation of the profit for its services performed on behalf of the U.K. parent company. We are of the opinion, based upon our understanding of the facts presented in your letter, that the Canadian subsidiary exists more than "... solely for the purpose of purchasing goods ..." (ref. Article V of new Canada-U.K. Tax Convention - 3(d)).
Additionally, we do not view the Canadian subsidiary as falling under the exclusion found in paragraph 4 of the Convention "... unless his activities are limited to the purchase of goods ...". From our understanding of your submission, the Canadian subsidiary negotiates contracts on behalf of the U.K. company in Canada.
We also are uncertain about the status of the U.K. Corporation in light of the current wording of Article IV of the new Canada-U.K. Tax Convention dealing with "resident of a contracting state". You state that the U.K. company is controlled by residents of Saudi Arabia, and we are therefore curious as to how the U.K. would treat the company for U.K. taxation purposes.
The foregoing is not a binding ruling but an expression of our opinion based upon our understanding of the limited facts presented. Should you wish a binding ruling we would be pleased to consider such a request when supplied with more detail on the operations of the entities involved in the situation.
Yours truly,
for Director Non-Corporate Rulings Division
Art. V. of Canada-U.K. Convention
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