Words and Phrases - "liable to tax"
Canada v. Alta Energy Luxembourg S.A.R.L., 2021 SCC 49, [2021] 3 S.C.R. 590
In considering whether there had been a treaty-shopping abuse of the Canada-Luxembourg Treaty by virtue of the taxpayer, which had its legal seat in Luxembourg, but was a “conduit entity” without a substantial economic connection to Luxembourg, accessing a Treaty exemption for a capital gain on its disposition of a Canadian resource company, Côté J stated (at paras. 53-54-56, 58):
[T[he use of the word “means” in this provision indicates that the definition should be “construed as comprehending that which is specifically described or defined” and thus as setting out all requirements that must be met to be considered a resident under the Treaty … .
In the context of corporations, the “liable to tax” requirement is met under the Treaty where the domestic law of a contracting state exposes the corporation to full tax liability on its worldwide income because it has its residence in that state … . The “liable to tax” requirement ... is not concerned with whether the person claiming benefits is in fact subject to taxation. Being liable to tax is better understood as being “liable to be liable to tax”, meaning that taxes are a possibility, regardless of whether the person actually pays any … . Therefore, corporate residents enjoying certain tax holidays, for example on capital gains, do not automatically lose their resident status under the Treaty because they are not subject to every possible form of taxation … . This can be contrasted with fiscally transparent vehicles like partnerships that are not exempted from taxation but, rather, are not exposed to tax at all … .
[A]rt. 4(1) … expressly states that residence is to be defined by the laws of the contracting state of which the person claims to be a resident. …
[T]his preference for leaving the meaning of residence to domestic law is totally consistent with the scheme of the Treaty. …
It is worth noting that the words “sufficient substantive economic connections” are conspicuous by their absence in the text of both arts. 1 and 4. Although the GAAR invites courts to go beyond the text to understand the object, spirit, and purpose of the provisions, there are limits to this exercise, especially when attempting to discern the intent of bilateral treaty partners.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | Treaty shopping to avoid capital gains tax on Canadian resource assets was contemplated, and not a Treaty abuse | 660 |
| Tax Topics - Treaties - Income Tax Conventions - Article 13 | utilization of the business property exemption by a Luxembourg conduit accorded with the bargain negotiated by Canada, which was to encourage investment by such investors | 605 |
| Tax Topics - Treaties - Income Tax Conventions | subsequent OECD Treaty commentary not followed | 198 |
| Tax Topics - Statutory Interpretation - Treaties | additional consideration in Treaty context of giving effect to the contractual bargain | 237 |
19 August 2010 External T.I. 2009-0344111E5 F - Résidence Société Capital-Risque - Conv Can-France
In finding that a French venture capital corporation ("VCC"), that was resident in France for French taxation purposes by virtue of its domicile as well as its effective place of management, and that had elected to be exempt from French corporate income tax respecting current income and capital gains on the sale of securities included in its portfolio, was a resident of France for purposes of the Canada-France Income Tax Convention, CRA stated:
[A] VCC is liable to tax in France by reason of its domicile, residence, place of management or any other criterion of a similar nature, as provided for in paragraph 1(a) of Article IV of the Convention, notwithstanding the fact that it may have opted for exemption from French corporation tax. It should be noted that a VCC may still be taxed in France on its gains from the disposal of securities which have remunerated it for its contribution of ancillary activities, as well as on income realized in accordance with the company's objects but not coming from the portfolio, such as profits from the disposal of movable or immovable property, and subsidies, all as described … above.
Crown Forest Industries Ltd. v. Canada, 95 DTC 5389, [1995] 2 S.C.R. 802, [1995] 2 CTC 64
Some of the income derived from a corporation incorporated in the Bahamas was effectively connected with the conduct by it of a business in the United States. However, Norsk paid no U.S. tax on barge rental payments received by it, including barge rental payments received from the Canadian taxpayer, by virtue of the exemption for international shipping companies contained in s. 883 of the U.S. Internal Revenue Code.
Norsk was liable to U.S. tax by reason of being "engaged in a trade or business" in the U.S. rather than on the basis of having a place of management in the U.S. Furthermore, liability for income effectively connected to a business engaged in the U.S. was not a "criterion of a similar nature" to those listed in Article IV, para. 1, of the Canada-U.S. Income Tax Convention because the other criteria entailed being subject to a comprehensive tax liability on the entity's world-wide income. Accordingly, Norsk was not a U.S. resident for purposes of that convention, with the result that rentals paid by the taxpayer to Norsk were not eligible for a reduced rate of withholding tax.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Treaties - Income Tax Conventions | 83 |