| September 1, 1989 | |
| International Audits Division | Specialty Rulings |
| S.K. Yuen | Directorate |
| O. Laurikainen | |
| 957-2125 | |
| File No. 7-3874 |
Subject: Article 13(4) of the Canada-Germany Income Tax Agreement (1981) (the "Agreement")
This is in response to your memorandum dated May 3, 1989, wherein you have enquired whether the position you propose to take in a response to a referral from the Vancouver District Office is in agreement with our interpretation. The referral from D.O. sets out a situation where a substantial interest 24(1) 21(1)(b)
Paragraph 13(4)(a) of the Agreement gives Canada a right to tax gains derived by a resident of West Germany from the alienation of shares forming a substantial interest in the capital stock of a company resident in Canada if the shares derive their value principally from immoveable property situated in Canada. The post-amble to Article 13(4) of the Agreement indicates that for the purposes of this paragraph, the term "immoveable property" includes the shares of a company the value of which shares is derived principally from immoveable property. There is no requirement that those shares of a company the value of which shares is derived principally from immoveable property. Accordingly, in our view the gain from the disposition of the shares of the holding company can be taxed in Canada provided it can be established that the shares it holds derive their value from immoveable property. However, it is in our view, inappropriate to make the assumption that the value of a company is derived from immoveable property solely on the basis that its name appears to indicate that it is a resource company. In addition, while we agree that mines and rights to explore for or exploit mineral deposits in Canada are immoveable property, it may be arguable that would be excluded from the definition of immoveable property for the purposes of Article 13(4) of the Agreement on the basis that a mine is a property in which the business of the company is carried on. Also, any other asset used in the business would not be immoveable property for the purposes of article 13(4) of the Agreement.
21(1)(b)
for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch