27 June 1986 Income Tax Severed Letter 5-1749 - []

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.

XXXX K.B. Harding (613) 957-2129

June 27, 1986

Dear Sirs:

This is in reply to your letter of January 7, 1985 wherein you questioned the meaning of the words "profits" for purposes of paragraph 2 of Article XVI of the Canada-U.S. Income Tax Convention ("Convention").

Paragraph 2 of Article III of the Convention states "... any term not defined therein shall, unless the context otherwise requires and subject to the provisions of Article XXVI (Mutual Agreement Procedure), have the meaning which it has under the law of the State concerning the taxes to which the Convention applies". Accordingly, since paragraph 1 of Article III does not define the term "profits", it will have the meaning it has under Canadian domestic law. As you are aware, profits for purposes of the Income Tax Act are determined in accordance with Part I of the Act.

It should be noted that the second sentence of paragraph 2 of Article XVI, which refers to the term profits, indicates that the anti-avoidance rule does not apply if it is established by the entertainer that neither he nor persons related to him participate directly or indirectly in the profits of the other person in any manner, including the receipt of deferred remuneration, bonuses, fees, dividends, partnership distributions or other distributions. It would appear that this rule is designed to accommodate those companies which are in the full time business of promoting entertainers for a profit.

We trust this is adequate for your purposes.

Yours truly,

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