Singco, a Singapore resident which is wholly-owned by Canco, carries on an active business through permanent establishment in each of a designated treaty country and one which is not (“Branch 1” and “Branch 2”, in countries A and B, respectively.) Under the income tax law for country A (but not for country B,) Singco is required to compute its income from its active business activities carried on through the branch for each taxation year. The profits of Branch 1 and Branch 2 are not subject to the income tax law of Singapore until such time as those profits are remitted to Singapore, which does not occur until a taxation year subsequent to when they arose. How would the “earnings” be computed? CRA responded:
[S]ince the income or profit of Branch 1 and Branch 2 for a taxation year is remitted to Singapore in a taxation year subsequent to the taxation year in which it is earned, the income tax law of Singapore would not require that that income or profit be computed in accordance with Singapore income tax law for the particular taxation year. Therefore, subparagraph (a)(i) of the definition of “earnings” would not apply in computing the earnings of Singco from its branches.
CRA went on to note that the “earnings” of Branches 1 and 2 would instead be computed under s. (a)(ii) and (iii), respectively, and also noted that:
unlike Branch 1, the “net earnings” derived by Singco for the year from the “earnings” from its active business carried on through Branch 2 in country B will not be included in its “exempt earnings” for the taxation year as country B is not a “designated treaty country”. Rather, they would be included in Singco’s “taxable earnings” for the taxation year.