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Dutch company subject to Canadian income tax under central management and control test, court rules

August-13-2018

Lawyer Kabir Jamal
Area Tax

Summary

Article originally published in MNE Tax, August 2018.

Excerpt from "Dutch company subject to Canadian income tax under central management and control test, court rules":

A Netherlands-incorporated company whose sole director was resident in the Netherlands was nevertheless resident in Canada for income tax purposes because the company’s central management and control was exercised by its two Canadian-resident shareholders, Canada’s Tax Court ruled on July 24.

As such, the Court, in Landbouwbedrijf Backx B.V. v. The Queen (2018 TCC 142), concluded that the company was subject to Canadian income tax on its capital gains.

The case is a useful reminder that, subject to any applicable treaty rules on tax residency, foreign-incorporated companies seeking to avoid Canadian income taxation on their worldwide income should ensure that all significant management decisions are made outside of Canada.

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