5-913487
24(1) O.Laurikainen
(613)957-2116
Attention: 19(1)
April 28, 1992
Dear Sirs:
Re: Canada-Cyprus Income Tax Convention
This is in response to your letter dated December 17, 1991 requesting a technical interpretation as to the effect of Article 24 of the Canada-Cyprus Income Tax Convention (the "Convention"). In particular you asked whether a Canadian resident taxpayer is able to claim a deduction under subsection 20(12) of the Income Tax Act (the "Act") for amounts of Cyprus withholding tax that are the subject of certain "tax-sparing" provisions of Cyprus law.
It is our view that under paragraph 1(a) of Article 24 of the Convention the words "and unless a greater deduction or relief is provided under the laws of Canada..." gives a Canadian taxpayer an alternative in the event there was something in the Act that provided greater relief than the foreign tax credit. Therefore in the event the deduction under subsection 20(12) of the Act provides greater relief because the taxpayer is unable get a full tax credit under subsection 126 of the Act, a taxpayer may choose to take the deduction. However under no circumstances is a taxpayer permitted to utilize both the foreign tax credit and a deduction under 20(12) of the Act.
In order to be deemed Cyprus tax payable in respect of interest received from a resident of Cyprus for the purposes of paragraph 2 of Article 24 of the Convention, the tax must otherwise be payable by a resident of Canada. Therefore, it would not include any amount that would otherwise be exempted by paragraph 3 of Article 11 of the Convention and could not exceed 15% of the gross amount of the interest by virtue of paragraph 2 thereof.
In response to your query concerning the form of certificate required for the purposes of paragraph 2(a) of Article 24 of the Convention, we note only that we are unaware of any guidelines. Since the form of certificate to be issued by the competent authority of the Republic of Cyprus (a copy of which you enclosed with your inquiry), appears to contain all of the information that must be certified by that competent authority to satisfy paragraph 2(a) of Article 24 of the Convention, we would expect that it would be satisfactory to our auditors.
We trust this is the information you require.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch