| 19(1) | File No. 5-7790 |
| Peter Lee | |
| (613) 957-2745 |
June 19, 1989
Dear Sir:
Re: Withholding Tax Under Paragraph 212 (1)(b) of the Income Tax Act (the "Act")
We are writing in reply to your letter of March 30, 1989 requesting our opinion with respect to withholding tax under paragraph 212(1)(b) of the Act when interest is paid by a Canadian branch of a U.S. corporation.
A Canadian branch of a corporation resident in the United States is generally not a resident of Canada for the purposes of paragraph 212(1)(b), unless it is deemed to be resident by virtue of subsections 212(13) or 212(13.2) of the Act. consequently, interest payments made by a non-resident to another non-resident are generally not subject to withholding tax under paragraph 212(1)(b). If subsections 212(13) or 212(13.2) apply to the Canadian branch, interest payable by the Canadian branch to an unrelated non-resident will represent interest payable by the Canadian branch to an unrelated non-resident will represent interest payable by a person resident in Canada and will be subject to withholding tax under paragraph 212(1)(b) unless exempted by specific provisions of paragraph 212(1)(b). Subparagraph 212(1)(b)(vii) only applies to interest payable by a corporation resident applicable such that a non-resident payor of interest is deemed to be a person resident in Canada and that the payor is a corporation, interest payable by the non-resident in Canada" for the purposes of subparagraph 212(1)(b)(vii). Accordingly, if all the other requirements of that subparagraph are met, such interest would be exempt from Part XIII tax.
Interest payments by a Canadian branch to its U.S. head office generally would not be subject to withholding tax under paragraph 212(1)(b) as in reality they would be payments by a person to itself.
Whether interest payments by a Canadian branch of a U.S. corporation to a Canadian bank are subject to U.S. withholding tax is a question that should be addressed to the Internal Revenue service of the United States.
This is not an advance income tax ruling and accordingly is not binding on the Department. We hope the foregoing is the information you require.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate