| 19(1) | File No. 5-8209 |
| O. Laurikainen | |
| (613) 957-2125 |
August 3, 1989
Dear Sirs:
Re: Calculation of Earnings of a Foreign Affiliate
This is in response to your letter of June 2, 1989. Your enquiry concerns the determination of earnings of a foreign affiliate for the purposes of clause 5907(1)(a)(i)(A) of the Regulations to the Income Tax Act (the "Regulations"), where the affiliate is resident in the United States and is subject to an alternative minimum tax ("AMT") in that country. Specifically, you have requested our view whether, in a particular year where AMT is applicable, the income or profit referred to in clause 5907(1)(a)(i)(A) of the Regulations would be the alternative minimum taxable income for that year.
It is our understanding that U.S. alternative minimum taxable income is regular taxable income after is has been increased by tax preference items and adjustments have been made to other tax items. As such, it is our view that the alternative minimum taxable income is not a taxpayer's income or profit from its active business carried on in the U.S. within the meaning of clause 5907(1)(a)(i)(A) of the Regulations, but instead is a computation of notional income upon which a creditable tax may be imposed. Finally, we note that certain items that would be adjusted in computing alternative minimum tax may fall within subsections 5907(2) or (2.1) of the Regulations.
We trust that this is the information you require.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch