27 June 1986 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.

June 27, 195

Re: Canada - Brazil Income Tax Convention the "Treaty"

This is a reply to your letter of June 1986 requesting a written response to your May 30, 1986 telephone query concerning whether subsection 20(12) of the Income Tax Act (the "Act") can be applied with respect to "tax spared amounts" referred to in paragraph 2 and 3 of Article 22 of the Treaty.

You ask additionally if the bank is still entitled to the deduction provided in paragraph 2 of Article 22 of the Treaty even if interest income arising from a loan to a Brazilian borrower is received by the bank's branch in the Bahamas.

Our Comments

1) The words in paragraph 2 of Article 22 of the Treaty state that Canada shall "allow as a deduction from the tax on the income ...". As subsection 20(12) of the Act provides for a deduction from income and not from tax we have to reply in the negative to your first question.

2) As indicated in paragraph 4 of our May 9, 1986 letter, although interest is paid by a Brazilian borrower to a branch of the Bank in the Bahamas arising from a loan from the Bank in Canada, the Bank is entitled to the deduction from tax reference to in paragraphs 2 and 3 of Article 22 of the Treaty.

We trust that our comments have satisfactorily responded to your enquiry.

Original Signed By

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch