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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
942680
XXXXXXXXXX T.B. Kuss
Attention: XXXXXXXXXX
March 1, 1995
Dear Sirs:
Re: Paragraph 2 of Article 6 of the Protocol to the Canada-U.S. Income Tax Convention
This is in reply to your letter dated February 9, 1995 requesting a technical interpretation on the application of proposed paragraph 2 of Article 6 of the third Protocol to the Canada-U.S. Income Tax Convention (the "Protocol") to the following hypothetical situation.
- A Canadian financial institution ("Canco") offers a U.S. dollar credit card (the "Card") to be used by residents of Canada to make purchases in the U.S.
- Canco has entered into an agreement (the "Agreement") with a U.S. financial institution ("Usco") with respect to the administration of the Card. Usco is a U.S. corporation carrying on a banking business in the United States.
- Under the terms of the Agreement, Usco agrees to reimburse the merchants for the purchases made by the users of the Card and Canco has assigned to Usco all receivables due to it arising from the use of the Card.
- The cardholders make all payments with respect to their account balances directly to Usco.
Analysis and Discussion
It is our view that purchases made with the card would constitute a "sale on credit" for purposes of proposed paragraph 2 Article 6 of the Protocol. Interest paid to Usco in respect of such purchases would be considered interest paid with respect to indebtedness arising as a consequence of a sale on credit. After the Protocol becomes effective, provided paragraph 2 of Article 6 is worded as proposed and the other requirements of that paragraph are satisfied, Canadian resident cardholders will be exempt from Canadian withholding tax obligations on interest payments to Usco in respect of U.S. purchases with the Card.
However, we wish to point out that interest paid to Usco in respect of "cash advances" received through use of the Card will not be exempt from Canadian withholding tax obligations.
We hope our comments are of assistance.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1995
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1995
Email this Content