Regulation 5907 - Interpretation

Subsection 5907(1)

Paragraph 5907(1)(l)

Administrative Policy

5 June 1996 T.I. 961803 (C.T.O. "Income or Profits Tax for Foreign Affiliate Rules")

"Income or profits tax" for purposes of the definition of "underlying foreign tax" could include Canadian income tax paid by a foreign affiliate...

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Earnings

Administrative Policy

14 March 2014 Internal T.I. 2013-0499141I7 - IRC 338(h)(10), "earnings" and safe income

After the Directorate found (at para. 232) that the earnings amounts of "US-Opco" foreign affiliates should be calculated similarly to what would...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2) goodwill gains which accrued prior to purchase of FA and which were included under s. 55(5)(d) did not contributed to gain on Canco shares 300
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Exempt Earnings no carve out for goodwill gains 142
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(2) - Paragraph 5907(2)(f) "notional" deduction arising from Code s. 338(h)(10) step-up of non-purchased goodwill reversed under Reg. 5907(2)(f) rather than (b) 453

5 September 2013 External T.I. 2011-0431031E5 - Guatemala's taxes

A Guatemalan tax on gross revenue was imposed at a rate (for 2013) of 5% up to a low threshold (appx. Cdn. $3,925) and 6% above under the same...

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20 May 2011 Roundtable, 2011-0404501C6 - computation of surplus

A US LLC wholly owned by a US corporation, which has not checked the box to be treated as a corporation for US tax purposes, nevertheless has...

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5 December 2003 External T.I. 2002-0165195

Where a debt owing by a controlled foreign affiliate to its Canadian parent had financed the acquisition of shares of a U.S. subsidiary in order...

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8 July 1998 T.I. 980712

A U.S. incorporated company (USco) which is a wholly-owned subsidiary of a corporation resident in Canada (Canco) is deemed to be a non-resident...

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80 C.R. - Q.17

Since under the income tax laws of the U.S. and the U.K. a payment made by one Canadian foreign affiliate to another in connection with group...

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Articles

Arda Minassian, Kara Ann Selby, "Computation of Surplus Accounts", 2002 Conference Report, (CTF), c. 43

Business in multiple countries (p. 43:6)

If a foreign affiliate carries on a business in multiple countries, the earnings definition may not...

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Paragraph (a)

Subparagraph (a)(i)

Administrative Policy

24 August 2016 External T.I. 2015-0592921E5 - Computation of Earnings of a Foreign Affiliate

Singco, a Singapore resident which is wholly-owned by Canco, carries on an active business through permanent establishment in each of a designated...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Earnings - Paragraph (a) - Subparagraph (a)(iii) branch earnings in non-designated country not computed under Singapore tax law until repatriated were computed under ITA rules 95

Subparagraph (a)(iii)

Administrative Policy

24 August 2016 External T.I. 2015-0592921E5 - Computation of Earnings of a Foreign Affiliate

A Singapore company was not required under Singapore income tax law to compute its income from its active business activities carried on through...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Earnings - Paragraph (a) - Subparagraph (a)(i) a Singapore company recognizing earnings from a foreign branch only on a remittance basis could not measure its “earnings” under Singapore rules 298

29 November 2016 CTF Roundtable Q. 11, 2016-0669761C6 - Computation of Earnings for LLCs

At the 2011 IFA Roundtable, Q.9, CRA indicated that a disregarded U.S. LLC that is a foreign affiliate and has a single member which is a regarded...

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Exempt Earnings

Administrative Policy

14 March 2014 Internal T.I. 2013-0499141I7 - IRC 338(h)(10), "earnings" and safe income

An indirect wholly-owned foreign affiliate ("FA") of Canco made an arm's length purchase of all the shares of "US Holdco," whose wholly-owned...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2) goodwill gains which accrued prior to purchase of FA and which were included under s. 55(5)(d) did not contributed to gain on Canco shares 300
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Earnings "notional" deduction arising from Code s. 338(h)(10) step-up excluded 137
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(2) - Paragraph 5907(2)(f) "notional" deduction arising from Code s. 338(h)(10) step-up of non-purchased goodwill reversed under Reg. 5907(2)(f) rather than (b) 453

10 March 2011 External T.I. 2008-0302851E5 - Application of subsection 96(1) to capital gains

Where Canco owns all the shares of two foreign affiliates (FA1 and FA2) which, in turn, each hold a 50% interest in a partnership, the exempt...

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Paragraph (d)

Subparagraph (d)(ii)

Clause (d)(ii)(A)

Subclause (d)(ii)(A)(I)

Administrative Policy

2015 Ruling 2015-0573141R3 - Subparagraph 95(2)(a)(i)

A Canadian corporation has a U.S. business of purchasing and collecting defaulted or other higher risk debts which, for risk management and state...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a) - Subparagraph 95(2)(a)(i) US sub servicing the collection of both its own debt portfolios and that of a U.S. sister was a good mothership to the sister 360

Exempt Surplus

Administrative Policy

23 June 1993 T.I. (Tax Window, No. 32, p. 13, ¶2608)

Where a foreign corporation with a December year-end pays a dividend in June and then becomes a foreign affiliate of a Canadian corporation in...

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15 January 1992 Memorandum (Tax Window, No. 15, p. 1, ¶1675)

Where a Canadian subsidiary owns shares in its U.S. parent, a taxable dividend paid to the parent will not be included in the exempt surplus of...

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Net Earnings

Administrative Policy

21 April 2015 Internal T.I. 2014-0560811I7 - FACL carryback – Surplus & PAS election

In 2010, CFA paid the "2010 Dividend" to its 100% parent ("Canco"). On audit, CRA identified that CFA had realized a capital gain (giving rise to...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.2) no relief for late-filed Reg. 5901(2)(b) election 54
Tax Topics - Income Tax Regulations - Regulation 5901 - Subsection 5901(2) - Paragraph 5901(2)(b) no relief for late-filed Reg. 5901(2)(b) election 172
Tax Topics - Income Tax Regulations - Regulation 5903.1 - Subsection 5903.1(1) FACL carryback from transitional year 154
Tax Topics - Income Tax Regulations - Regulation 600 no relief for late-filed Reg. 5901(2)(b) election 54

15 January 1992 Memorandum (Tax Window, No. 15, p. 2, ¶1676)

The U.K. ACT is not an "income or profits tax", although the normal corporate tax payable by a foreign affiliate, before any deduction in respect...

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Underlying Foreign Tax

Administrative Policy

30 October 2014 External T.I. 2013-0488881E5 - Upstream Loan

The disproportionate election under s. (b) of the UFT definition is treated as being applicable for a s. 90(9)(a) notional dividend received by...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) no double inclusion following FA creditor wind-up 60
Tax Topics - Income Tax Act - Section 40 - Subsection 40(3) notional s. 40(3) gain does not generate surplus 70
Tax Topics - Income Tax Act - Section 90 - Subsection 90(6) no double inclusion following FA creditor wind-up or for 2nd loan in series 121
Tax Topics - Income Tax Act - Section 90 - Subsection 90(9) notional election and double taxation issues 1332
Tax Topics - Income Tax Regulations - Regulation 5901 - Subsection 5901(1.1) notional Reg. 5901(1.1) election 30
Tax Topics - Income Tax Regulations - Regulation 5901 - Subsection 5901(2) - Paragraph 5901(2)(a) 90-day rule unavailable 28
Tax Topics - Income Tax Regulations - Regulation 5901 - Subsection 5901(2) - Paragraph 5901(2)(b) notional Reg. 5901(2)(b) election 31

27 November 1998 T.I. 982283

The tax paid by a U.S. C.-Corp (which is a foreign affiliate of the Canadian taxpayer) in respect of its share of the investment income earned by...

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88 C.R. - Q.12

Foreign tax paid in respect of a capital gain may reasonably be regarded as having been paid in respect of taxable earnings to the extent that...

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Underlying Foreign Tax Applicable

Administrative Policy

3 April 2013 External T.I. 2012-0460671E5 - Disproportionate UFT election

In Year 1, FA2, which has no exempt surplus, and taxable surplus and underlying foreign tax of $200 and $25, respectively, pays a $100 dividend...

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9 August 1991 T.I. 901185

In Year 1, FA2, which has no exempt surplus, and taxable surplus and underlying foreign tax of $1,000 and $100, respectively, pays a $100...

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Subsection 5907(1.1)

Administrative Policy

22 November 1991 Memorandum (Tax Window, No. 13, p. 9, ¶1608)

Provided that the primary and secondary affiliates are going concerns and the intercompany account has been charged with a number of offsetting...

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Subsection 5907(1.3)

Administrative Policy

8 April 2004 Internal T.I. 2003-0037291I7 - US LLC and Regulation 5907(1.3)

A wholly-owned US C-corp subsidiary (US Holdco) of a taxable Canadian corporation wholly-owned two LLCs (US LLC1 and US LLC2), which earned only...

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Subsection 5907(1.5)

Administrative Policy

6 February 2015 External T.I. 2014-0542281E5 - Foreign affiliate - prescribed foreign accrual tax

Under the income tax law of "Country X" FA2, its sister, FA3 and FA1, which is the parent of FA2 and FA2 and the wholly-owned subsidiary of Canco,...

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Subsection 5907(1.6)

Articles

Adam Freiheit, "Reinstated Foreign Accrual Tax and the Multi-Period Perspective", Canadian Tax Journal, (2015) 63:2, 521-42, p. 521.

General reduction under Reg. 5907(1.4) (p. 523)

[R]egulation 5907(1.3) can prescribe the particular FA's tax compensation payments to other...

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Subsection 5907(2)

Paragraph 5907(2)(f)

Administrative Policy

6 May 2014 May CALU Roundtable, 2014-0523341C6 - CALU - Insurance Death Benefit received by FA

Mr. X, a Canadian resident, owns 100% of Canco which owns 100% of the shares (having a low ACB) of Foreignco, which is required by the income tax...

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14 March 2014 Internal T.I. 2013-0499141I7 - IRC 338(h)(10), "earnings" and safe income

An indirect wholly-owned foreign affiliate ("FA") of Canco made an arm's length purchase of all the shares of "US Holdco," whose wholly-owned...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2) goodwill gains which accrued prior to purchase of FA and which were included under s. 55(5)(d) did not contributed to gain on Canco shares 300
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Earnings "notional" deduction arising from Code s. 338(h)(10) step-up excluded 137
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Exempt Earnings no carve out for goodwill gains 142

5 December 2003 External T.I. 2002-0165195

The U.S. subsidiary ("CFA1") of Canco has non-interest bearing loans payable by it to Canco. The proceeds of those loans had been used by CFA1 to...

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Paragraph 5907(2)(j)

Administrative Policy

26 May 2016 IFA Roundtable Q. 8, 2016-0642041C6 - s. 95(2)(a)(ii)(B) and borrowing to return capital

Where FA1 borrows $350,000 from a sister (FA3) to make a capital distribution to its Canadian shareholder (Canco) on its Class A common shares,...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a) - Subparagraph 95(2)(a)(ii) - Clause 95(2)(a)(ii)(B) tracing approach to determining whether interest on money borrowed to return capital is considered for s. 95(2)(a)(ii)(B) to be deductible in computing exempt earnings 496

28 May 2015 IFA Roundtable Q. 11, 2015-0581571C6 - IFA 2015 Q11: Application of clause 95(2)(a)(ii)(B)

"Borrower FA," which exclusively carries on an active business, borrows money from "Lender FA" to pay a dividend in an amount not exceeding its...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a) - Subparagraph 95(2)(a)(ii) - Clause 95(2)(a)(ii)(B) interest on borrowing to distribute accumulated profits 248

6 March 1995 Memorandum 941221 (C.T.O. "Adjustments in the Computation of Exempt Surplus")

Interest paid on overdue taxes must be deducted under Regulation 5907(2)(j) in computing the earnings of a foreign affiliate.

93 C.M.TC - Q. 2

Discussion of treatment of interest paid by one U.S. foreign affiliate to another where only part of the interest paid is deductible under s....

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20 May 1993 T.I. (Tax Window, No. 31, p. 3, ¶2509)

Where funds are lent by FA1 to a second foreign affiliate (FA2) which carries on business in the U.S., and due to the application of the excess...

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22 November 1991 Memorandum (Tax Window, No. 13, p. 9, ¶1608)

In the absence of persuasive evidence, charitable donations, political donations and penalties will not be considered to be deductible.

Articles

Arda Minassian, Kara Ann Selby, "Computation of Surplus Accounts", 2002 Conference Report, (CTF), c. 43

The underlying principle of the regulation 5907(2) adjustments is to determine the amount of assets available to repatriate surplus. Permanent...

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Subsection 5907(2.01)

Administrative Policy

22 April 2015 External T.I. 2014-0550451E5 - Interpretation of paragraph 5907(2.01) of the Regulations.

Does "consideration received" in Reg. 5907(2.01)(a) include any liabilities assumed by a foreign affiliate (the "Receiving Affiliate") on a...

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Subsection 5907(2.02)

Articles

Paul Barnicke, Melanie Huynh, "Exempt Earnings Anti-Avoidance", Canadian Tax Highlights, (Canadian Tax Foundation), Vol. 23, No. 12, December 2015, p. 5

Application of rule to non-rollover reorgs, cf. fresh start rule (p. 5)

The main target of this anti-avoidance rule may be intercompany...

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Jenny Li, "The Interaction of the Fresh Start and Surplus Reclassification Rules", International Tax, Wolters Kluwer CCH, April 2014, No. 75, p. 8.

Two conditions under Reg. 5907(2.02) (p. 9)

[T]he "surplus reclassification rule". [fn 5: Regulation 5907(2.02).]…rule reclassifies an amount of...

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Subsection 5907(2.03)

Administrative Policy

22 January 2013 External T.I. 2012-0460121E5 - Computation of "earnings" of a foreign affiliate

In taxation year X, the tax regime in Forland changes so that FA ceases to be required under the income tax law of Forland to compute its income...

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Articles

Michael W. Colborne, "Regulation 5907(2.03) and Offshore Metal Streams", Resource Sector Taxation, Volume IX, No. 2, 2013, p. 647.

Description of offshore metal streams transactions (pp. 647-8)

While a detailed description of offshore metal streams transactions is beyond the...

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Subsection 5907(2.1)

Articles

Albert Baker, David Bunn, "FAs and the Repeal of the ECP Regime", Canadian Tax Highlights, Vol. 24, No. 9, September 2016, p. 4

Repeal of ECP regime will affect the consequences of the election (p. 4)

Assume for instance that a US business is acquired by an FA of a Canadian...

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Paul Dhesi, Korinna Fehrmann, "Integration Across Borders", Canadian Tax Journal, (2015) 63:4, 1049-72

Advantage of book depreciation election (p.1071)

[A]n election is available under regulation 5907(2.1) to use book depreciation rather than tax...

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Subsection 5907(2.6)

Administrative Policy

1 March 1991 Memorandum (Tax Window, No. 2, p. 18, ¶1185)

The election cannot be filed late.

Subsection 5907(2.7)

Administrative Policy

25 April 1995 T.I. 942987 (C.T.O. "6363-1 Foreign Affiliates Deemed ABI")

Where one U.S. subsidiary ("B") of a Canadian corporation lends money on an interest-bearing basis to a second U.S. subsidiary ("C") of the...

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Subsection 5907(5)

Articles

Philippe Montillaud, Grant J. Russell, "Foreign Accrual Tax and Flow-through Entities", International Tax Planning, Volume XVIII, No. 4, 2013, p. 1280

Application of s. 93(2.01) stop-loss rule to DLAD capital loss (p. 1282)

Regulation 5907(5) requires that capital gains and losses for surplus...

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Subsection 5907(5.1)

Subsection 5907(6)

Administrative Policy

10 October 2014 APFF Roundtable Q. 24, 2014-0538181C6 F - 2014 APFF Roundtable, Q. 24 - Surplus accounts calculation

Reg. 5907(6) was amended for taxation years commencing after 18 December 2009 to eliminate a prohibition against maintaining surplus accounts of a...

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Brian Darling, "Revenue Canada Perspectives" in Income Tax and Goods and Services Tax Considerations in Corporate Financing, 1992 Corporate Management Tax Conference Report (Canadian Tax Foundation, 1993), 5

1-20, question 7, at 5:13:

[w]hat is reasonable in the circumstances can be determined on a case-by-case basis. There are no hard-and-fast rules....

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Subsection 5907(10)

Administrative Policy

The Queen v. Old HW-GW Ltd., 93 DTC 5199 (FCA)

Because Puerto Rico was a country distinct from the United States for purposes of paragraphs (b) and (c) of Regulation 5907(10), it followed given...

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Subsection 5907(11)

Administrative Policy

1 May 2009 CLHIA Roundtable Q. 4, 2009-0316641C6 - CLHIA Round Table Question #4 - TIEAs

In order for income from an active business carried on by a foreign affiliate to qualify as 'exempt earnings', the affiliate must be resident in a...

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7 June 1991 T.I. (Tax Window, No. 4, p. 31, ¶1285)

St. Vincent includes the Grenadine Islands of the Bequia, Mustique, Canouan, Mayreau, Union Island and associated islets which are under the...

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Articles

Nathan Boidman, "Canada's Two-Faced TIEAs - Netherlands Antilles Trumps Bermuda", Tax Notes International, Vol. 55, No. 12, September 21, 2009, p. 1023.

Subsection 5907(11.2)

Administrative Policy

2013 Ruling 2013-0477871R3 - 5900(1)(a) and dividends from foreign affiliate

Background

A non-resident subsidiary (ForeignHoldco) of a taxable Canadian corporation (Parent) made a non-interest-bearing loan (the Loan) to...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 90 - Subsection 90(14) repayment by set-off against dividend 91

10 November 1997 T.I. 971117

A Barbados corporation that had International Business Corporation status in Barbados and that was ineligible for any tax benefit under the...

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1997 A.P.F.F. Round Table , Q. 3.5, No. 9M19020

"Under the IBC Act, a corporation that is not incorporated under the laws of Barbados in which it has a branch that qualifies as an IBC, is...

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27 October 1997 T.I. 970470

A foreign affiliate ("USCO") that was incorporated in the U.S. but operates in Mexico through a branch and has its central management and control...

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17 February 1997 T.I. 961753

The ten-year tax holiday for Barbados Enclave Enterprises would not, by itself, disqualify them from being considered as being resident in Barbados.

Locations of other summaries Wordcount
Tax Topics - Treaties - Article 4 63

8 March 1996 T.I. 960067

A foreign affiliate incorporated in Barbados and licensed under the Exempt Insurance Act, 1983 will not be considered to be "liable to taxation"...

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Locations of other summaries Wordcount
Tax Topics - Treaties - Article 4 73

1996 Corporate Management Tax Conference Round Table, Q. 3

Because the term "resident in a designated treaty country" is not defined, a company must be resident in a designated treaty country under...

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Subsection 5907(13)

Administrative Policy

3 October 2000 External T.I. 1999-001556

In a situation where a foreign affiliate continues into Canada, the Agency indicated that although s. 128.1(1)(b) "may deem certain dispositions...

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