22 May 1990 Income Tax Severed Letter AC59122 - U.S. Partnership

24(1)                                     5-9122
                                          G.D. Middleton
                                          (613) 957-2129

19(1)

May 22, 1990

Dear Sirs:

This is in reply to your letter of november 20, 1989 wherein you asked whether a U.S. partnership is considered to be a "resident of a contracting State" as defined under paragraph 1 of article IV of the Canada-U.S. Income Tax Convention (the"U.S. Convention").

Generally, for purposes of the U.S. Convention, it is our view that a U.S. partnership is not a resident of a Contracting State.

However, for the purposes of determining income tax liability which may be reduced by agreements or conventions, it has been accepted that a partnership should be treated as a conduit. as an example, where a Canadian company borrows money from a U.,S. partnership whose partners are individuals residing in the U.S. and Germany, the interest paid on the borrowed money will, for tax convention purposes, be considered to be received by the individual partners.

Accordingly, the "interest" article of the U.S. Convention will apply to the U.S. partners whereas the "interest" article of the Canada-Germany Income Tax Agreement will apply to the German partners.

We trust these comments will be of assistance to you.

Yours truly,

for director Reorganizations and Non-Resident Division specialty Rulings Directorate Legislative and intergovernmental Affairs Branch