2 January 1996 External T.I. 9514185 - ARTICLE XIII CANADA-ISRAEL TREATY

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.

Principal Issues:

Whether par.3 of Article XIII of Canada-Israel treaty applies when a corporation alienates shares of another corporation resident in Canada

Position:

generally, no but if abuse GAAR will apply

Reasons:

because of the wording of par.3 of that Article

		951418
XXXXXXXXXX	S. Leung

Attention: XXXXXXXXXX

January 2, 1996

Dear Sirs:

Re: Article XIII of the Canada-Israel Income
Tax Convention (1975) (the "Convention")

We are writing in response to your letter of May 12, 1995 wherein you requested our view as to your interpretation of paragraph 3 of Article XIII of the Convention.

The situation outlined in your letter appears to relate to actual proposed transactions and, therefore, should be the subject of an advance income tax ruling. Confirmation as to the income tax consequences of proposed transactions will only be given in the context of an advance income tax ruling. The procedures for making a request for an advance income tax ruling are outlined in Information Circular 70-6R2, dated September 28, 1990 and the related Special Release thereto. We can, however, offer the following general comments.

Where a corporation resident in Israel ("Firstco") alienates shares of the capital stock of a corporation resident in Canada ("Secondco") the only assets of which are shares of another corporation in Canada ("Thirdco"), it is the Department's view that the provisions of paragraph 3 of Article XIII of the Convention are generally not applicable and by virtue of paragraph 4 of that Article, Firstco will not be liable to taxation in Canada on the gain, if any, arising from the alienation of the shares of Secondco notwithstanding that the property of Thirdco consists principally of immovable property situated in Canada. However, the provisions of section 116 of the Income Tax Act (the "Act") apply.

The Department will consider the application of the general anti-avoidance rule in section 245 of the Act if it is evident that in contemplation of a sale of the shares of a particular Canadian company a structure was put in place in an attempt to obtain the tax relief provided by the Convention as set out above.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch