| 19(1) | Jim Wilson |
| (613) 957-2063 | |
| HBW 4125-D1 |
February 7, 1990
Dear 19(1)
Re: Pension Proceeds from Denmark
We are writing in reply to your letter dated October 24, 1989, addressed to the Charlottetown District Taxation Office, concerning the tax treatment of pension plan proceeds from Denmark. We apologize for the delay in replying, however, we had to wait for translation of the documents submitted (see attached).
Where the income is proceeds from the termination of a pension plan (as indicated in your letter), article X of the Canada-Denmark Double Taxation Agreement (1956) would apply. Accordingly, Canada would have exclusive right to tax and would not allow a foreign tax credit or subsection 20(11) deduction. The question as to why taxes were withheld would be a matter between your client and the Danish tax authorities.
According to the documents submitted, the income in question may in fact be proceeds from the termination of a life insurance policy. If this is the situation, Article X would not apply and both Canada and Denmark would have a right to tax. Canada would allow a foreign tax credit for income taxes withheld.
We are unable to determine whether the taxes or charges described in these documents meet the definition of "taxes" for purposes of the treaty or "non-business-income tax" for purposes of domestic law. The information submitted is very confusing. We would require written details from the Danish tax authorities regarding their taxation of life insurance policies before making such a determination. It is likely that the ultimate tax or charge withheld (i.e. taxes and charges withheld that are not subject to partial refund upon application to the tax authorities) will be eligible for foreign tax credit treatment.
We trust that you will find this to your satisfaction.
Yours sincerely,
C. SavageA/DirectorProvincial and International Relations Division
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