Principal Issues: Whether a Barbados-incorporated life insurance QIC is resident in Barbados for the purpose of Part LIX of the Income Tax Regulations
Position: Yes, provided that the QIC is managed and controlled in Barbados and is liable to tax in Barbados within the meaning of Article IV of the Canada-Barbados Tax Agreement
Reasons: See document
XXXXXXXXXX 2009-034144 D. Boychuk (613) 948-5274
January 11, 2011
Dear XXXXXXXXXX :
Re: Barbados-Incorporated Life Insurance QICs
We are writing in response to your email of September 17, 2009, in which you requested our views on whether a Barbados-incorporated Qualifying Insurance Company that is registered to carry on a life insurance business ("life insurance QIC") would be considered to be resident in Barbados for the purpose of Part LIX of the Income Tax Regulations.
In your email, you stated that a life insurance QIC is subject to tax in Barbados in respect of its insurance business equal to the aggregate of 5% of its gross investment income (excluding premium income) and between 3% and 5% on premium income from risks originating within Barbados. A life insurance QIC that earns premium income that is sourced exclusively outside Barbados is allowed a foreign earnings credit on its gross investment income that reduces the effective tax rate on that income to 0.35%.
We assume, for the purpose of responding to your question, that a life insurance QIC is a corporate entity and is subject to tax in Barbados on any income not described above in the same manner as any other Barbados-resident company.
To be resident in Barbados for the purposes of Part LIX of the Regulations, a life insurance QIC:
(a) must be centrally managed and controlled in Barbados (i.e., resident in Barbados under the Canadian common law test of residency); and
(b) subsection 5907(11.2) of the Regulations does not apply to deem the QIC not to be resident in Barbados.
Subsection 5907(11.2) of the Regulations deems a foreign affiliate of a Canadian corporation not to be resident in a country with which Canada has entered into a tax treaty unless the foreign affiliate is described in one of paragraphs 5907(11.2)(a) to (d). A QIC will be described in either of paragraphs (a) or (c) if the QIC is "liable to taxation" in Barbados within the meaning of Article IV of the Canada-Barbados Tax Agreement ("Agreement").
Our views on the approach to determining whether a particular entity is liable to taxation in a state in which Canada has a tax treaty were recently set out in our document 2007-026155. Applying the approach set out in that document to a life insurance QIC, we would consider the QIC to be "liable to taxation" in Barbados if:
1. Barbados asserts its jurisdiction to tax the QIC under its domestic law.
2. The assertion of the jurisdiction to tax is based on one of the connecting factors referenced in Article IV of the Agreement (i.e., "domicile, residence, place of management or any other criterion of a similar nature"); and
3. By reason of conditions 1 and 2 being met, the QIC becomes liable to the most comprehensive form of taxation that exists in Barbados.
We are not aware of any reason why a life insurance QIC that is managed and controlled in Barbados would not be liable to taxation in Barbados within the meaning of Article IV of the Agreement. However, if you have any concerns as to whether any of the above-noted conditions are met with respect to a particular life insurance QIC or whether any particular life insurance QIC is resident in Barbados for the purposes of Part LIX of the Regulations, we would prepared to address this issue in the context of an advance tax ruling.
We trust that these comments are of some assistance.
Yours truly,
for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch