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.
DRAFT
CORPORATE MANAGEMENT TAX CONFERENCE ROUND TABLE - JUNE 1996
Question No. 21
ARTICLE XXI EXEMPTION
In certain circumstances, paragraph 3 of Article XXI of the Canada-U.S. Income Tax Convention (the "Convention") removes the basic withholding tax exemption granted under that Article where the income is derived from a "related person".
(a)For purposes of that Article, what does the term "related person" mean? Specifically, does it mean the same as defined under the Income Tax Act?
(b)Where the recipient of interest or dividends is a partnership of United States pension funds or other entities otherwise qualified for the benefits of Article XXI, the Department has previously confirmed that it will look through the partnership to each member and grant or withhold the exemption based on the member's proportionate interest in the partnership. Will a similar look-through be applied in determining a member's "related person" status under paragraph 3 of Article XXI of the Convention?
Department's Position
The term "related person" is not defined in the Convention. In accordance with paragraph 3 of the Income Tax Conventions Interpretation Act, that term has, except to the extent the context otherwise requires, the meaning it has for purposes of the Income Tax Act (the "Act"), as amended from time to time. The term "related persons" is defined, for purposes of the Act, in subsection 251(2) of the Act. In the context of Article XXI of the Convention "related person" has the meaning assigned in the Act.
Where a person is a member of a partnership, the Department will look through to the members in determining whether a particular member is related to the person from which the income is derived and whether paragraphs 1 or 2 of Article XXI of the Convention are applicable in respect of that member. It is a question of fact whether a partnership, and thereby its members, is considered to be carrying on a trade or business.
Author: Tim Kuss
File: 961707
Date: May 16, 1996
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