Article 8

Cases

Furness, Withy & Company Limited v. Minister of National Revenue, 68 DTC 5033, [1968] CTC 35, [1968] S.C.R. 221

Article 5 of the Canada-U.K. Income Tax Convention of 1946 did not exempt earnings of a U.K.-resident shipping company derived from managing or agency or stevedoring services which it rendered in Canada to other corporations, although it was entitled to exemption respecting amounts which arose from charges made by its Canadian branches for agency and stevedoring services to ships which were owned and chartered by it and were operated in its own shipping service.

See Also

Director of Income Tax v. A.P. Moller Maersk, Civil Appeal No. 2960 of 2017 (Supreme Court Of India, Civil Appellate Jurisdiction)

computer tracking-system charges of a Danish company to agents in India were profits of its international shipping business

A Danish international shipping company (“Maersk”) charged local agents in India, who booked and tracked cargo, for their pro rata share of the costs of a Maersk computer and telecommunication system that was key to these functions. Article 13 of the India-Denmark Treaty permitted India to impose tax of 20% on the gross amount of fees for technical services (essentially defined, somewhat similarly to Art. 12(4) of the India-Canada Treaty) as “consideration for the services of technical or other personnel”), and Article 9 provided for a reduced rate of Indian tax on “profits derived from the operation of ships in international traffic.”

In finding that Maersk’s fees came within Article 9 rather than 13, Sikri J stated (at para 12):

'[P]rofit' from operation of ships under Article…9 … would necessarily include expenses for earning that income and … [the] more so, when it is found that the business cannot be run without these expenses. This Court … has categorically held that use of [a] facility does not amount to technical services, as technical services denote services catering to the special needs of the person using them and not a facility provided to all.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 12 computer tracking-system charges of a Danish company to local agents were profits of its international shipping business rather than for technical services 346

Administrative Policy

23 October 2012 External T.I. 2011-0431301E5 - Meaning of Substantial Operation

CRA was asked whether an operation that provides temporary services, for a period of less than six months, constitutes a "substantial operation" for purposes of Art. 8, para. 2 of the Canada-Sweden Convention. CRA responded:

The treaty does not provide specific time frames for determining the minimum period required to establish a "substantial operation" in a Contracting State. The treaty states that where a non-resident has a substantial operation in Canada for purposes of operating its ships or aircraft "during a taxation year" between places within Canada, Canada may tax the profits from such operation. The phrase "during a taxation year" suggests that there is no minimum period required in order to establish the existence of a substantial operation.

CRA also provided general comments on the meaning of "substantial operation":

The ordinary meaning of this term has been considered in Canadian domestic case law. In particular, Canadian courts considered the meaning of the term "substantial" in (SCC) Manning Timber Products Ltd. v MNR [52 DTC 1148]. Based on the facts of this case, the term "substantial" took on the meaning of "large quantity" and "important". However, the courts commented that the meaning of this term had a number of different senses, all depending on the context in which it is used. In (TCC) Taylor v the Queen [2001] 3 CTC 2126, a substantial operation was identified in terms of the factors of capital and time spent on the business.

The CRA has previously expressed its views on the factors considered in determining whether an active trade or business is "substantial" for the purposes of Article XXIX-A(3) of the Canada-United States Tax Convention. In comparing the size of the trade or business outside Canada and the income-generating activity within Canada, the CRA considered factors such as income, assets, payroll expense, the size and nature of relevant markets or other similar measures.

14 February 2012 External T.I. 2011-0428531E5 - Art. VIII, 6 Canada-US Tax Convention

the 183-day test in Art. VIII, para. 6 of the Canada-US Convention is applied on an item-buy-item basis (e.g., for a particular boxcar).

28 April 2008 External T.I. 2007-0238071E5 F - Voiturier public

taxpayer need not own the vehicles or operate them provided that it is engaged in all other aspects of the transporting service and is responsible to the customers

The taxpayer uses the services of subcontractors to have the goods transported, but handles all other aspects of the business and remains responsible to both the sending and receiving customers. In finding that the lack of ownership of the vehicles need not be an impediment to exemption of the taxpayer’s profits under Art. VIII of the Canada-U.S. Convention, CRA stated:

In our view, a person who carries on the business of providing, for consideration, a service of transporting property from one place to another and who generally offers its services to the public, is a common carrier. In our view, such a person could operate such a transportation business without owning the vehicles used for such transportation. The person could even use subcontractors (who provide their trucks and pay their own expenses) to perform the transportation portion of the business. However, in order to claim that it is the taxpayer who provides the transportation service and who is engaged in the operation of motor vehicles as a common carrier, it would be necessary for the taxpayer to have some involvement in the operations of the business by maintaining, for example, a certain degree of control and supervision over the transportation service. … [I[f the facts indicate that the taxpayer … is otherwise a common carrier, that the taxpayer is engaged in all aspects necessary for the proper operation of a business providing a transportation service for the transportation of goods (other than the transportation itself) such as rate setting, billing, advertising, the establishment of service standards, the establishment of drop-off points, the receipt of orders from shipper customers, and that the taxpayer remains liable to both shipper and receiver customers, we could conclude that the taxpayer is engaged in the operation of motor vehicles as a common carrier for the purposes of paragraph 4 of Article VIII of the Convention.

Words and Phrases
common carrier

31 October 1991 T.I. (Tax Window, No. 12, p. 17, ¶1559)

Where a taxable Canadian corporation leases a ship on a bare boat basis from a corporation resident and managed in the Netherlands, Part XIII tax will be payable on any lease payments relating to voyages made principally for the purpose of transporting passengers or goods between Canadian ports; and the lease payments for other voyages will be exempt.

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