4 May 1990 Income Tax Severed Letter ACC9117 - Canada-U.K. Income Tax Convention - Non-availability of Corporate Tax Abatement

Jim Wilson
                                                   (613) 957-2063
                                                   HBW 4327-2-2
                                                   HBW 4125-UI

May 4, 1990

               19(l)

 Dear                         24(1)  
                        Re:

We are writing in reply to your letter dated February 14, 1990, concerning the above-noted company and the applicability of Article 22 of the Canada-United Kingdom Income Tax Convention.

At issue iF the non-availability of the corporate tax abatement provisions of subsection 124(l) of the Income Tax Act to a non-resident corporation no' having a permanent establishment in Canada in situations where the province of Ontario levies a' corporate income tax and whether paragraph 1 of Article 22 can be used to alleviate the apparent inequity.

We were aware of the scenario described in your letter and have brought it to the attention of the Department of Finance. We do not know if amendments to the current Federal-Provincial income tax allocation formulas are pending and we are not in a position to comment on tax policy matters pertaining to this issue.

The issue then becomes whether relief for your client can be authorized pursuant to paragraph 1 of Article 22. In this regard, the following comments are applicable:

1)   Paragraph 5 of Article 22 defines the term "taxation" (as
used in paragraph 1 of Article 22) as taxes which are the subject
of this Convention.  Article 2 deccribes the taxes which are     
subject to this Convention as those imposed by the Government    
of Canada only.                    has not been subjected to    
any federal taxes more burdensome  than the federal tax    
requirements to which a Canadian national under the same    
circumstances would be subjected.  For example, a Canadian    
national (i.e. company incorporated in Canada) that does not have
a permanent establishment in a province would not be eligible for
the federal tax abatement.

2) We are aware of several anomalies concerning the federal-provincial income tax allocation formulas. The problems commonly affect residents as well as non-residents, We are of the opinion that these anomalies are simply discrepancies between federal and provincial income tax legislation and do not amount to discrimination between foreign nationals and Canadians.

For the reasons described above we do not feel paragraph 1 of Article 22 applies to 24(1). We realize a greater tax burden may arise to certain taxpayers as a result of anomalies in the current federal-provincial income tax allocation formulas, but this is not a matter that can be addressed by Revenue Canada, Taxation through the non-discrimination articles in Canada's tax treaties.

We regret our reply could not be more favourable. If you require further information, please do not hesitate to contact us.

Yours sincerely,

C. Savage A/Director Provincial and International Relations Division

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