28 April 2008 External T.I. 2007-0238071E5 F - Voiturier public
Principal Issues: [TaxInterpretations translation] Does a taxpayer have to own the motor vehicles to be considered to be engaged in the operation of the motor vehicles as a common carrier for the purposes of paragraph 4 of Article VIII of the Canada-U.S. Tax Convention?
Position: No, it must, however, have a sufficient degree of involvement, control and supervision to claim that it is the person providing the transportation service or is engaged in the operation of motor vehicles as a common carrier.
Reasons: We consider a common carrier to be a person who carries on the business of providing, for consideration, a service of transporting property from one place to another and who generally offers its services to the public. This definition does not include any requirement to own motor vehicles.
XXXXXXXXXX 2007-023807 Sylvie Labarre, CA April 28, 2008
Dear Madam,
Subject: Common carrier
This is in response to your letter of May 24, 2007 requesting our views on the application of Article VIII of the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital of 1980 (the "Convention"). We apologize for the delay in responding to your request.
You indicated that a taxpayer does not have to include in the computation of the taxpayer’s income, for Quebec tax purposes, an amount that is exempt from income tax in Quebec or Canada because of a provision of a tax agreement with a country other than Canada.
Paragraph 4 of Article VIII of the Convention provides, inter alia, that notwithstanding the provisions of Articles VII and XII, profits of a resident of a Contracting State engaged in the operation of motor vehicles as a common carrier derived from the transportation of passengers or property between a point outside the other Contracting State and any other point shall be exempt from tax in that other Contracting State.
XXXXXXXXXX The taxpayer uses the services of subcontractors to have the goods transported. However, this taxpayer appears to handle all other aspects of the business and remains responsible to both the sending and receiving customers.
You asked us whether, in order to be considered a common carrier, a taxpayer must own the motor vehicles, or if the taxpayer can deal with subcontractors who own the vehicles, which would mean that, in a situation such as this, the taxpayer would be considered to be engaged in the operation of motor vehicles as a common carrier.
Our Comments
In our view, a person who carries on the business of providing, for consideration, a service of transporting property from one place to another and who generally offers its services to the public, is a common carrier. In our view, such a person could operate such a transportation business without owning the vehicles used for such transportation. The person could even use subcontractors (who provide their trucks and pay their own expenses) to perform the transportation portion of the business. However, in order to claim that it is the taxpayer who provides the transportation service and who is engaged in the operation of motor vehicles as a common carrier, it would be necessary for the taxpayer to have some involvement in the operations of the business by maintaining, for example, a certain degree of control and supervision over the transportation service. The question of what degree of involvement, control and supervision is necessary to conclude that a taxpayer in a particular situation is providing the transportation service and is engaged in the operation of motor vehicles as a common carrier is a question of fact. The conclusion in certain situations will be more obvious. For example, if the facts indicate that the taxpayer (such as XXXXXXXXXX) is otherwise a common carrier, that the taxpayer is engaged in all aspects necessary for the proper operation of a business providing a transportation service for the transportation of goods (other than the transportation itself) such as rate setting, billing, advertising, the establishment of service standards, the establishment of drop-off points, the receipt of orders from shipper customers, and that the taxpayer remains liable to both shipper and receiver customers, we could conclude that the taxpayer is engaged in the operation of motor vehicles as a common carrier for the purposes of paragraph 4 of Article VIII of the Convention.
We hope that these comments are of assistance.
Best regards,
Alain Godin
for the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.