2014-0560351E5 Canada-Hong Kong Tax Agreement

Principal Issues: Whether the Canada-Hong Kong Tax Agreement is both "an agreement with another country" and "an agreement with the government of another country" for the purposes of the Income Tax Act?

Position: Yes.

Reasons: Pursuant to the "Basic Law" of the Hong Kong Special Administrative Region (“HKSAR”) of the People's Republic of China, authority to conclude and implement agreements with foreign states and regions and relevant international organizations in appropriate fields is delegated to the HKSAR. When read in context, the phrases "an agreement with a country” and “an agreement with the government of another country” can, for the purposes of the Act, be interpreted in a manner so as to conclude that the condition that the Canada-Hong Kong Tax Agreement be an agreement with, or with the government of, another country is satisfied.

Author: Hikspoors, Maryann
Section: 115.1(1), 116(5.01), 219.2 and 219.3

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                                                                                                                                               2014-056035
                                                                                                                                               M. Hikspoors
                                                                                                                                               (613) 670-9003

March 25, 2015

Dear XXXXXXXXXX:

Re:   The Canada-Hong Kong Tax Agreement

We are writing in response to your email dated December 3, 2014 in which you requested our view as to whether subsections 115.1(1) and 116(5.01), and sections 219.2 and 219.3, of the Income Tax Act (the “Act”) applied to the Agreement between the Government of Canada and the Government of the Hong Kong Special Administrative Region of the People’s Republic of China for The Avoidance of Double Taxation and The Prevention Of Fiscal Evasion With Respect To Taxes On Income (the “Canada-Hong Kong Tax Agreement”). The Canada-Hong Kong Tax Agreement was signed on November 11, 2012 and entered into force on October 29, 2013.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation.  It does not confirm the income tax treatment of a particular situation but is intended to assist you in making that determination.  The income tax treatment of transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Ruling.

The provisions you referred to in your email contain the expressions “a tax convention or agreement with another country”, “a tax treaty that Canada has with a particular country”, and “an agreement or convention between the Government of Canada and the government of another country”. We would further note that, subsection 248(1) defines tax treaty for the purposes of the Act as follows:

“Tax treaty” with a country at any time means a comprehensive agreement or convention for the elimination of double taxation on income, between the Government of Canada and the government of the country, which has the force of law in Canada at that time.”

As such, each of the provisions you referred to addresses, inter alia, agreements Canada has with, or with the government of, another country.

Pursuant to Article 151 of The Basic Law of the Hong Kong Special Administrative Region (“HKSAR”) of the People’s Republic of China (footnote 1), authority to conclude and implement agreements with foreign states and regions and relevant international organizations in appropriate fields is delegated to the HKSAR. Those appropriate fields include, inter alia, the economic, trade, and financial and monetary fields. The Canada-Hong Kong Tax Agreement is, in our view, one such agreement.

In our view, when read in context, the phrases “an agreement with a country” and “an agreement with the government of another country” can, for the purposes of the Act, be interpreted in a manner so as to conclude that the condition that the Canada-Hong Kong Tax Agreement be an agreement with, or with the government of, another country is satisfied.

We trust our comments will be of assistance.

Yours truly,

Lori M. Carruthers CPA, CA
Section Manager
for Division Director
International Division
Income Tax Rulings Directorate
Legislative Policy Regulatory Affairs Branch

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  Adopted at the Third Session of the Seventh National People's Congress on 4 April 1990, promulgated by Order No. 26 of the President of the People's Republic of China on 4 April 1990, and effective as of 1 July 1997.

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