Nós, canadá, imposto, tratado, estoque, opções

Mudança de posição na alocação de benefícios de opções de ações transnacionais.
Data de lançamento: 22 de fevereiro de 2013.
Convidado: Chantal McCalla.
Duração: 7:30 minutos.
Através de entrevistas com proeminentes profissionais da área tributária da PwC, a Tax Tracks é uma série de podcasts de áudio projetada para apresentar comentários sucintos sobre questões técnicas, políticas e administrativas de impostos que fornecem informações ocupadas aos diretores fiscais que elas necessitam.
Mudança de posição na alocação de benefícios de opções de ações transnacionais.
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Mudança de posição na alocação de benefícios de opções de ações transnacionais.
Você está ouvindo outro episódio de Tax Tracks da PwC em pwc / ca / ​​taxtracks. Esta série analisa as questões técnicas e administrativas mais urgentes que afetam os diretores fiscais mais ocupados da atualidade.
Sharon: Olá, aqui é Sharon Mitchell, da PwC Canada, e este é um podcast sobre as recentes mudanças na alocação de receita de ações aceitas pela Agência Canadense de Renda. Com a gente hoje é Chantal McCalla, gerente sênior em nosso escritório em Toronto. Ela é especializada nos desafios de recursos humanos enfrentados por cessionários internacionais de entrada e saída.
Chantal: Obrigado Sharon - é bom estar aqui.
Sharon: Chantal, você pode nos dar uma introdução de alto nível das mudanças do outono de 2012 relacionadas à alocação de opções de ações?
Chantal: Claro Sharon, o que aconteceu é que a Agência Canadense de Receitas (CRA) confirmou recentemente que aplicará os princípios estabelecidos no Comentário sobre o Artigo 15 da Convenção Fiscal Modelo da OCDE sobre renda e capital, ao alocar um benefício de opção de compra de ações. para o Canadá. Ou seja, a menos que um tratado de imposto de renda se aplique especificamente. Esta convenção modelo da OCDE fornece orientação aos países para ajudar a resolver questões envolvendo dupla tributação internacional e constitui um ponto de partida para negociações de tratados tributários entre países. Esta alteração aplica-se a exercícios de opção de ações após 2012.
Sharon: Chantal, qual foi a alocação anteriormente aceita antes dessa mudança?
Chantal: Bem, a visão de longo prazo do CRA foi alocar o benefício aos serviços prestados no ano da concessão, a menos que haja evidências convincentes para sugerir que algum outro período é mais apropriado. Em contraste, a partir de 2005, a orientação da OCDE informou que a chave é determinar o valor do benefício derivado do emprego exercido no país de origem, considerando todos os fatos e circunstâncias relevantes. Em muitos casos de países, esse seria o período de concessão para a aquisição das opções.
Sharon: Entendo, então, historicamente, havia alguma desvantagem em terceirizar a opção de compra de ações para os serviços prestados no ano de concessão versus os países aplicáveis ​​onde os serviços eram realizados em diferentes períodos, como concessão para exercício ou aquisição de direitos?
Chantal: Sim, exatamente Sharon certamente poderia ser, você vê que a posição padrão da CRA pode levar a uma dupla tributação quando não há alívio de crédito fiscal estrangeiro ou outro alívio disponível sob um tratado de imposto de renda dependendo das outras jurisdições estrangeiras envolvidas e seu próprio ponto de vista abastecimento.
Sharon: Então presumo que a mudança alivia o risco de dupla tributação. Você pode nos contar um pouco sobre como aplicar essas mudanças?
Chantal: Claro. Para o seu primeiro ponto, você está correto. Essa mudança ajuda a reduzir a ambiguidade em torno do fornecimento de opções de ações e, como você mencionou, alivia o risco de dupla tributação. Ele traz a posição padrão do Canadá de acordo com o modelo de diretrizes da convenção da OCDE e, portanto, com as abordagens de muitos países em todo o mundo.
Para ser específico, o CRA resumiu os princípios da OCDE da seguinte forma:
A determinação do valor de um benefício de opção de compra de ações que é derivado do emprego exercido em um país de origem deve levar em consideração todos os fatos e circunstâncias relevantes, incluindo os contratos subjacentes. Em particular, um benefício de opção de compra de ações é distribuído para cada país de origem com base no número de dias de emprego exercidos naquele país sobre o número total de dias no período durante o qual os serviços de emprego dos quais o benefício de opção de ações é exercido são exercidos.
Geralmente, presume-se que um benefício de stock option se relaciona com o período de emprego que é requerido como uma condição para o empregado adquirir o direito de exercer a opção, isto é, o "período de aquisição". e um benefício de opção de ações é geralmente assumido como não relacionado a serviços passados, a menos que haja evidência indicando que serviços passados ​​são relevantes nas circunstâncias particulares.
Nesta base, o resultado é uma melhor correspondência dos créditos fiscais estrangeiros para opções de ações transfronteiriças.
Sharon: Ok, eu acho que entendo, você pode nos dar um exemplo de como esses princípios mudaram as alocações de opções de ações.
Chantal: Claro, digamos que eu tenha um residente canadense para fins fiscais, que tenha uma opção de compra de ações enquanto morador do Canadá e que o indivíduo vá para os EUA e depois dos EUA para a América do Sul nos anos subsequentes, mas continue sendo residente do Canadá durante todo este período de tempo. Como um residente permanente do Canadá, este indivíduo é tributado em 100% do benefício da opção de ações. Nesse caso, o indivíduo tem uma opção de ações cujo período de concessão para vest abrange o período de atribuição. Esse indivíduo pode estar sujeito a impostos nos EUA e na América do Sul no exercício da opção de compra de ações. Na ausência de evidência em contrário, o Canadá teria adquirido previamente a opção de compra de ações para os serviços prestados no ano da concessão, neste caso o Canadá, não deixando nenhuma capacidade de reivindicar o crédito de imposto estrangeiro sobre o retorno canadense para o potencial dos EUA. Impostos sul-americanos pagos. Com a nova orientação em vigor, esse indivíduo pode agora obter o benefício da opção de compra de ações sobre o serviço de emprego de três países e reivindicar o crédito de imposto estrangeiro sobre o retorno canadense para os impostos americanos e sul-americanos pagos.
Sharon: Obrigado por essa explicação detalhada Chantal. Há alguma possível exceção a essa nova orientação?
Chantal: Ótima pergunta Sharon. Como afirma o Modelo da Convenção da OCDE, pode haver circunstâncias em que um período de alocação diferente do da concessão ao colete seja apropriado, como serviços passados, mas o contrato de opção precisaria estipular isso claramente. A CRA também observa que, quando os termos da opção indicam que a concessão é tratada como uma transferência de propriedade de títulos, a CRA pode atribuir o benefício de acordo (ou seja, fornecido para o local no momento da concessão). As circunstâncias observadas como indicativas de uma transferência de propriedade incluem onde as opções estavam dentro do dinheiro ou onde elas não estão sujeitas a um período de aquisição substancial.
Sharon: Então, Chantal, no final, qual é o resultado final?
Chantal: No final, Sharon, este último anúncio permite ao empregador e ao executivo internacionalmente móvel maior certeza quanto à alocação adequada de seus benefícios de opções de ações transnacionais para fins fiscais canadenses e ajuda a aliviar o potencial de dupla tributação, como Ele traz a abordagem do Canadá de acordo com a visão predominante de muitos países ao redor do mundo.
Sharon: Obrigado Chantal por esta discussão informativa sobre as recentes mudanças nas alocações de opções de ações no Canadá.
Chantal: meu prazer Sharon.
Sharon: Se você tiver alguma dúvida relacionada a este tópico, os detalhes de contato de Chantal podem ser encontrados em nosso site de podcast do PwC, pwc / ca / ​​taxtracks.
As informações contidas neste podcast são fornecidas com o entendimento de que os autores e editores não estão envolvidos na prestação de consultoria ou serviços jurídicos, contábeis, tributários ou outros profissionais. O público deve discutir com consultores profissionais como a informação pode se aplicar à sua situação específica.
Copyright 2013 PricewaterhouseCoopers LLP. Todos os direitos reservados. A PricewaterhouseCoopers se refere à PricewaterhouseCoopers LLP, uma sociedade de responsabilidade limitada de Ontário, ou, conforme o contexto exigir, à rede global da PricewaterhouseCoopers ou a outras firmas-membro da rede, cada uma das quais é uma entidade legal separada e independente. Para detalhes completos sobre direitos autorais, por favor visite nosso website em pwc / ca.

Nós opções de ações do tratado fiscal do Canadá
No anexo B do quinto Protocolo (o “Protocolo”) ao Tratado do Canadá-EUA, há um acordo entre o Canadá e os EUA sobre como tributar a renda de emprego de opções de ações. No passado, havia uma inconsistência entre os dois países, que por vezes resultava em dupla tributação. A fim de aliviar esta questão, os dois países concordaram em taxar a renda do emprego em uma proporção acordada. O rácio baseia-se no número de dias em que um indivíduo esteve empregado no local de trabalho até ao número de dias empregados entre a data de concessão e a data de exercício. Suponha os seguintes fatos: Um indivíduo recebeu uma opção de ações no primeiro dia de seu emprego no Canadá. O indivíduo trabalhou por 300 dias no Canadá antes de se mudar para os Estados Unidos. O indivíduo exerceu as opções 400 dias depois de se mudar para os Estados Unidos.
Em um caso como esse, 300 mais de 700 dos rendimentos do trabalho serão alocados para o Canadá e o restante alocado para os Estados Unidos.
Não obstante o acima exposto, as autoridades competentes de ambos os países podem concordar em atribuir a renda de uma maneira diferente se ambos os países concordarem que os termos da opção eram tais que a concessão era essencialmente uma transferência de propriedade. Por exemplo, se as opções foram concedidas “no dinheiro” ou não sujeitas a um período de aquisição substancial, então a autoridade competente pode realocar o rendimento do emprego.
DICA TRIBUTÁRIA DA SEMANA é fornecida como um serviço gratuito a clientes e amigos das empresas-membro do Tax Specialist Group. O Tax Specialist Group é uma afiliação nacional de empresas que se especializam na prestação de serviços de consultoria tributária a outros profissionais, empresas e indivíduos de alta renda em questões tributárias canadenses e internacionais e disputas tributárias.

Canadá: Boletim de Direito Tributário - Novo Protocolo ao Tratado de Impostos entre o Canadá e os EUA: Disposições de Previdência Transfronteiriça e Novas Regras de Distribuição de Opções de Ações.
Provisões para pensões transfronteiriças.
O recém-lançado Quinto Protocolo (o "Protocolo") à Convenção sobre o Imposto de Renda entre o Canadá e os EUA (o "Tratado") amplia significativamente o escopo das disposições do Tratado que tratam das aposentadorias. O Protocolo oferece isenção de impostos para indivíduos que tenham atribuições de trabalho transfronteiriças e que sejam cobertos por um plano de aposentadoria qualificado fora de seu país de origem. De acordo com as disposições atuais do Tratado, o alívio é limitado a uma eleição para adiar o imposto sobre a renda acumulada em um plano no outro país até que o plano faça uma distribuição. A eleição não se estende a contribuições ou benefícios acumulados em um plano de aposentadoria. O Protocolo aborda essas deficiências com duas novas disposições que se aplicam especificamente ao planejamento de contribuições e acréscimos de benefícios.
As disposições do Protocolo aplicam-se a planos que são designados como "planos de aposentadoria qualificados". Esses planos são definidos em uma das Notas Diplomáticas que acompanha a divulgação do Protocolo. Para fins canadenses, os planos de aposentadoria qualificados incluem Planos de Pensão registrados sob a seção 147.1 da Lei do Imposto de Renda (Canadá) (o "Ato Tributário"), grupo Registrado Planos de Poupança Reforma (RRSPs) sob a subseção 204.2 (1.32) da Lei Tributária. Planos de Participação nos Lucros nos termos da seção 147 e de qualquer RRSP ou Fundo de Renda de Aposentadoria Registrada (RRIF) que é financiado exclusivamente por contribuições de rolagem de um plano listado. Um RRSP individual, além de um financiado com contribuições de rolagem, geralmente não se qualifica para benefícios do Tratado.
As novas provisões de pensão aplicar-se-ão às pessoas que residem em um país enquanto trabalham no outro país e contribuem para um plano de aposentadoria qualificado no país em que trabalham. Por exemplo, um residente canadense que trabalha nos Estados Unidos pode contribuir para o plano de pensão do empregador dos EUA. As contribuições do indivíduo para o plano serão dedutíveis para fins de imposto de renda do Canadá. O valor dos benefícios creditados de acordo com o plano dos EUA não será incluído na receita do funcionário no ano em que forem acumulados. Tal benefício fiscal será limitado à sala de dedução do RRSP disponível no indivíduo, determinada de acordo com a Lei Fiscal. O valor de quaisquer contribuições para o plano dos EUA deduzido pelo indivíduo será levado em consideração na determinação do limite de contribuição do RRSP vitalício do indivíduo.
Uma segunda disposição do Protocolo estenderá benefícios a um indivíduo que trabalhe em um país enquanto continua como membro de um plano de aposentadoria qualificado no outro país. Esta disposição se aplica a um indivíduo dos EUA que ocupa um emprego no Canadá e continua a acumular benefícios de pensão de acordo com o plano de aposentadoria de seu empregador dos EUA. Sujeito a um conjunto de condições detalhadas, as contribuições feitas para o plano e os benefícios dos EUA decorrentes desse plano seriam dedutíveis ou excludentes no cálculo da receita do funcionário no Canadá. Os benefícios deste alívio não estarão disponíveis se um indivíduo tiver prestado serviços no país do qual ele não é residente por mais de 60 dos 120 meses anteriores ao ano fiscal atual do indivíduo.
Para obter alívio sob a provisão, o indivíduo deve ter sido um membro do plano de aposentadoria qualificado imediatamente antes de começar a trabalhar no outro país. Outra condição para a disponibilidade de alívio é que nenhuma contribuição possa ser feita para um plano de aposentadoria qualificado no país de emprego durante o período de serviço. Observe que, para esse fim, se o emprego é no Canadá, um RRSP individual é considerado como um plano de aposentadoria qualificado.
O Protocolo inclui uma série de melhorias técnicas adicionais ao Artigo de Pensões do Tratado. Por exemplo, um Roth IRA é especificamente adicionado à definição de uma "pensão" para fins do Tratado. O Protocolo também deixa claro que um membro de uma sociedade que exerce uma atividade comercial será considerado em uma relação empregador / empregado para fins de aplicação das disposições sobre pensão do Protocolo.
As provisões de pensão aplicar-se-ão aos anos de tributação que começam após o ano civil no qual as notificações de ratificação são trocadas pelos governos do Canadá e dos Estados Unidos.
Regras de rateio de opções de ações.
O Canadá e os Estados Unidos expressaram, por algum tempo, opiniões divergentes sobre a tributação dos benefícios de opções de ações recebidos por um indivíduo que trabalha em ambos os países. Essa divergência pode levar a dupla tributação. Para eliminar a possibilidade de dupla tributação, o Anexo B do Protocolo fornece uma nova regra de rateio que se aplica a situações em que um empregado recebe uma opção de compra em um país e exerce a opção no outro país enquanto empregado pelo mesmo (ou um relacionado ) Empregador. Sob os termos das novas regras, tanto o Canadá como os EUA terão o direito de tributar o benefício da opção de compra de ações, mas cada país estará limitado a taxar apenas aquela parte do benefício que equivale ao número de dias em que o principal o emprego estava naquele país durante o período entre a data de concessão e a data de realização das opções de assunto dividido pelo número de dias naquele período. Existe, no entanto, um poder discricionário reservado às autoridades competentes do Canadá e dos EUA para prever uma alocação alternativa se os termos das opções relevantes fossem de tal ordem que sua concessão seria mais apropriadamente tratada como uma transferência de propriedade de títulos (o exemplos apresentados nas situações de referência do Anexo, em que as opções estavam em dinheiro ou não sujeitas a um período de aquisição substancial).
O precedente fornece apenas uma visão geral. Os leitores são advertidos contra qualquer decisão baseada apenas neste material. Em vez disso, um advogado qualificado deve ser consultado.
© Copyright 2007 McMillan Binch Mendelsohn LLP.
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Convenção entre o Canadá e os Estados Unidos da América.
Com respeito a impostos sobre o rendimento e sobre o capital.
Esta versão consolidada da Convenção Canadá-Estados Unidos relativa a impostos sobre receita e capital, assinada em Washington em 26 de setembro de 1980, modificada pelos Protocolos assinados em 14 de junho de 1983, 28 de março de 1984, 17 de março de 1995 e 29 de julho de 1997, é fornecido apenas por conveniência de referência e não tem sanção oficial.
O Canadá e os Estados Unidos da América, desejando concluir uma Convenção para evitar a dupla tributação e a prevenção da evasão fiscal no que diz respeito aos impostos sobre o rendimento e sobre o capital, acordaram o seguinte:
Escopo Pessoal.
Esta Convenção é geralmente aplicável a pessoas que sejam residentes de um ou de ambos os Estados Contratantes.
Artigo II.
Impostos Cobertos.
1. A presente Convenção aplica-se aos impostos sobre o rendimento e sobre o capital impostas em nome de cada Estado Contratante, independentemente da forma como são cobradas.
2. Não obstante o parágrafo 1, os impostos existentes em 17 de março de 1995, aos quais se aplica a Convenção, são:
(a) no caso do Canadá, os impostos impostos pelo Governo do Canadá sob a Lei do Imposto de Renda; e.
(b) no caso dos Estados Unidos, o Imposto de Renda Federal imposto pelo Internal Revenue Code de 1986. No entanto, a Convenção se aplicará a:
(i) o imposto sobre os lucros acumulados nos Estados Unidos e o imposto sobre as participações societárias, na extensão e na medida necessárias para implementar as disposições dos parágrafos 5 e 8 do Artigo X (Dividendos);
(ii) os impostos especiais de consumo dos Estados Unidos impostos a fundações privadas, na medida e somente na medida necessária para implementar as disposições do parágrafo 4 do Artigo XXI (Organizações Isentas);
(iii) os impostos previdenciários dos Estados Unidos, na medida e apenas na medida necessária para implementar as disposições do parágrafo 2 do Artigo XXIV (Eliminação da dupla tributação) e do parágrafo 4 do Artigo XXIX (Regras Diversas); e.
(iv) os impostos patrimoniais dos Estados Unidos impostos pelo Internal Revenue Code de 1986, na medida e somente na medida necessária para implementar as disposições do parágrafo 3 (g) do Artigo XXVI (Procedimento do Acordo Mútuo) e do Artigo XXIX B (Impostos impostos pela razão da morte).
3. A Convenção também se aplicará a:
a) quaisquer impostos idênticos ou substancialmente semelhantes aos impostos a que a Convenção se aplica nos termos do parágrafo 2; e.
(b) impostos sobre o capital;
que são impostas depois de 17 de março de 1995, além de, ou em lugar de, os impostos aos quais a Convenção se aplica nos termos do parágrafo 2.
Artigo III.
Definições Gerais.
1. Para os fins da presente Convenção, salvo disposição em contrário:
(a) quando usado em sentido geográfico, o termo "Canadá" significa o território do Canadá, incluindo qualquer área além dos mares territoriais do Canadá que, de acordo com o direito internacional e as leis do Canadá, é uma área dentro da qual o Canadá pode direitos de exercício em relação ao solo e subsolo marinho e seus recursos naturais;
(b) o termo "Estados Unidos" significa:
(i) os Estados Unidos da América, mas não inclui Porto Rico, as Ilhas Virgens, Guam ou qualquer outra posse ou território dos Estados Unidos; e.
(ii) quando usado em um sentido geográfico, tal termo também inclui qualquer área além dos mares territoriais dos Estados Unidos que, de acordo com o direito internacional e as leis dos Estados Unidos, é uma área na qual os Estados Unidos podem exercer direitos; com respeito ao leito do mar e subsolo e seus recursos naturais;
(c) o termo "imposto canadense" significa os impostos referidos no Artigo II (Impostos Cobertos) que são impostos ao rendimento pelo Canadá;
d) a expressão "imposto dos Estados Unidos" significa os impostos referidos no Artigo II (Impostos Cobertos), que não sejam os subalíneas i) a iv) do parágrafo 2 da mesma, que incidem sobre o rendimento dos Estados Unidos; Estados;
(e) o termo "pessoa" inclui um indivíduo, uma herança, um trust, uma companhia e qualquer outro corpo de pessoas;
(f) o termo "companhia" significa qualquer pessoa jurídica ou qualquer entidade que seja tratada como pessoa jurídica para fins tributários;
g) O termo "autoridade competente" significa:
(i) no caso do Canadá, o Ministro da Receita Federal ou seu representante autorizado; e.
(ii) no caso dos Estados Unidos, o Secretário do Tesouro ou seu delegado;
h) a expressão "tráfego internacional" com referência a um residente de um Estado Contratante significa qualquer viagem de um navio ou aeronave para transportar passageiros ou bens (operados ou utilizados por esse residente), exceto quando o objetivo principal da viagem transportar passageiros ou bens entre locais situados no outro Estado Contratante;
i) o termo "Estado" significa qualquer Estado nacional, seja ou não um Estado Contratante; e.
(j) o termo "Convenção de 1942" significa a Convenção e Protocolo entre o Canadá e os Estados Unidos para Evitar a Dupla Tributação ea Prevenção da Evasão Fiscal no caso de Imposto de Renda assinado em Washington em 4 de março de 1942, conforme emenda. pela Convenção assinada em Ottawa em 12 de junho de 1950 pela Convenção assinada em Ottawa em 8 de agosto de 1956 e pela Convenção Complementar assinada em Washington em 25 de outubro de 1966.
2. No que diz respeito à aplicação da Convenção por um Estado Contratante, qualquer termo não definido no mesmo, salvo disposição em contrário e sob reserva do disposto no Artigo XXVI (Procedimento de Contratação Mútua), tem o significado que lhe é conferido pela lei desse Estado. Estado sobre os impostos a que a Convenção se aplica.
Artigo IV.
1. Para os fins da presente Convenção, o termo "residente" de um Estado Contratante significa qualquer pessoa que, de acordo com as leis desse Estado, deva tributar-se em razão do domicílio, residência, nacionalidade, local de direção dessa pessoa, local de constituição ou qualquer outro critério de natureza semelhante, mas no caso de um património ou fideicomisso, apenas na medida em que os rendimentos obtidos pelo património ou pelo trust sejam tributáveis ​​nesse Estado, seja nas suas mãos ou nas mãos dos seus beneficiários. Para os fins deste parágrafo, um indivíduo que não seja residente do Canadá sob este parágrafo e que seja cidadão dos Estados Unidos ou estrangeiro admitido nos Estados Unidos para residência permanente (um portador de "green card") seja residente do país. Estados Unidos somente se o indivíduo tiver uma presença substancial, domicílio permanente ou residência habitual nos Estados Unidos e as relações pessoais e econômicas desse indivíduo estiverem mais próximas dos Estados Unidos do que de qualquer terceiro Estado. O termo "residente" de um Estado Contratante inclui:
o Governo desse Estado ou uma sua subdivisão política ou autoridade local ou qualquer agência ou instrumento de qualquer governo, subdivisão ou autoridade, e.
(b) (i) um fideicomisso, organização ou outro arranjo que seja operado exclusivamente para administrar ou fornecer benefícios de pensão, aposentadoria ou empregado; e.
(ii) uma organização sem fins lucrativos.
que se constituiu nesse Estado e que, pela sua natureza, é geralmente isento de imposto sobre o rendimento nesse Estado.
2. Quando, em virtude das disposições do parágrafo 1, uma pessoa física for residente de ambos os Estados Contratantes, então seu status será determinado da seguinte maneira:
a) é considerado como residente do Estado Contratante em que tem uma residência permanente à sua disposição; se tiver um lar permanente disponível para ele em ambos os Estados ou em nenhum dos Estados, será considerado como residente do Estado Contratante com o qual suas relações pessoais e econômicas estão mais próximas (centro de interesses vitais);
b) Se o Estado Contratante em que tem o seu centro de interesses vitais não puder ser determinado, será considerado como residente do Estado Contratante em que tenha residência habitual;
c) se tiver residência habitual em ambos os Estados ou em nenhum dos Estados, é considerado residente do Estado Contratante de que é cidadão; e.
d) se for cidadão de ambos os Estados ou se não for nacional de nenhum deles, as autoridades competentes dos Estados Contratantes resolverão a questão de comum acordo.
3. Quando, em virtude das disposições do parágrafo 1, uma sociedade for residente de ambos os Estados Contratantes, se tiver sido criada nos termos da legislação em vigor em um Estado Contratante, será considerada como residente desse Estado. Não obstante a sentença anterior, uma empresa que tenha sido criada em um Estado Contratante, residente de ambos os Estados Contratantes e que continue a qualquer momento no outro Estado Contratante, de acordo com a legislação societária desse outro Estado, será considerada enquanto continua a ser um residente desse outro Estado.
4. Quando, em virtude das disposições do parágrafo 1, um estado, truste ou outra pessoa (que não seja uma pessoa física ou jurídica) for residente de ambos os Estados Contratantes, as autoridades competentes dos Estados deverão, de comum acordo, tentar resolver a questão. e determinar o modo de aplicação da Convenção a essa pessoa.
5. Não obstante o disposto nos parágrafos anteriores, uma pessoa será considerada como residente de um Estado Contratante se:
(a) a pessoa física for um funcionário desse Estado ou de uma subdivisão política, autoridade local ou instrumento de prestação de serviços no exercício de funções ou de caráter governamental no outro Estado Contratante ou em um terceiro Estado; e.
(b) o indivíduo está sujeito, no primeiro Estado, a obrigações similares com relação a impostos sobre a renda, como são os residentes do primeiro Estado mencionado.
O cônjuge e os filhos a cargo que residam com tal indivíduo e satisfaçam os requisitos do subparágrafo (b) acima também serão considerados residentes do primeiro Estado mencionado.
Estabelecimento permanente.
1. Para os fins da presente Convenção, a expressão "estabelecimento permanente" significa uma instalação fixa de negócios por meio da qual a atividade de um residente de um Estado Contratante é exercida, no todo ou em parte.
2. A expressão "estabelecimento permanente" inclui especialmente:
(a) um local de gestão;
(e) um workshop; e.
(f) uma mina, um poço de petróleo ou gás, uma pedreira ou qualquer outro local de extração de recursos naturais.
3. Um estaleiro ou projecto de construção ou instalação constitui um estabelecimento permanente se, mas apenas se, durar mais de 12 meses.
4. A utilização de uma instalação ou equipamento de perfuração ou de um navio num Estado Contratante para explorar ou explorar recursos naturais constitui um estabelecimento permanente se, mas apenas se, essa utilização for superior a três meses em qualquer período de doze meses.
5. Uma pessoa que atue em um Estado Contratante, em nome de um residente do outro Estado Contratante, que não seja um agente de um estatuto independente a que se aplica o parágrafo 7, será considerada como um estabelecimento permanente no primeiro Estado mencionado. pessoa exerce habitualmente nesse Estado uma autoridade para celebrar contratos em nome do residente.
6. Não obstante o disposto nos parágrafos 1, 2 e 5, a expressão "estabelecimento permanente" será considerada como não incluindo uma instalação fixa utilizada exclusivamente para, ou uma pessoa mencionada no parágrafo 5, engajada exclusivamente em uma ou mais das seguintes entidades: as seguintes atividades:
a) a utilização de instalações para fins de armazenagem, exposição ou entrega de bens ou mercadorias pertencentes ao residente;
(b) a manutenção de um estoque de bens ou mercadorias pertencentes ao residente para fins de armazenagem, exposição ou entrega;
c) a manutenção de um estoque de bens ou mercadorias pertencentes ao residente para fins de processamento por outra pessoa;
(d) a compra de bens ou mercadorias, ou a coleta de informações, para o residente; e.
(e) publicidade, fornecimento de informações, pesquisa científica ou atividades similares que tenham caráter preparatório ou auxiliar para o residente.
7. Um habitante de um Estado Contratante não será considerado como tendo um estabelecimento permanente no outro Estado Contratante pelo simples facto de esse residente exercer a sua actividade nesse outro Estado através de um corretor, comissão geral ou qualquer outro agente de um estatuto independente, desde que que essas pessoas estão agindo no curso normal de seus negócios.
8. O facto de uma sociedade residente de um Estado Contratante controlar ou ser controlada por uma sociedade residente do outro Estado Contratante ou que exerça a sua actividade nesse outro Estado (quer através de um estabelecimento permanente, quer de outra forma). , não constituirá nenhuma das empresas um estabelecimento permanente da outra.
9. Para os fins da Convenção, as disposições deste Artigo serão aplicadas para determinar se alguém tem um estabelecimento permanente em qualquer Estado.
Artigo VI.
Renda de Imóveis.
1. Os rendimentos obtidos por um residente de um Estado Contratante provenientes de bens imóveis (incluindo rendimentos da agricultura, silvicultura ou outros recursos naturais) situados no outro Estado Contratante podem ser tributados nesse outro Estado.
2. Para os fins da presente Convenção, o termo "bens imóveis" terá o significado que lhe confere a legislação tributária do Estado Contratante de que os bens em questão são situados e incluirá qualquer opção ou direito similar em relação aos mesmos. O termo deve, em qualquer caso, incluir o usufruto de bens imóveis, direitos para explorar ou explorar depósitos minerais, fontes e outros recursos naturais e direitos a quantias computadas por referência à quantidade ou valor de produção de tais recursos; navios e aeronaves não serão considerados bens imóveis.
3. As disposições do parágrafo 1 aplicar-se-ão aos rendimentos derivados do uso direto, do arrendamento ou da utilização em qualquer outra forma de bens imóveis e aos rendimentos provenientes da alienação desses bens.
Artigo VII.
Lucros das empresas.
1. Os lucros cessantes de um residente de um Estado Contratante só são tributáveis ​​nesse Estado, a não ser que o residente exerça sua atividade no outro Estado Contratante por meio de um estabelecimento permanente aí situado. Se o residente exercer, ou tiver exercido, os negócios supracitados, os lucros do residente poderão ser tributados no outro Estado, mas somente na medida em que forem imputáveis ​​a esse estabelecimento permanente.
2. Com ressalva do disposto no parágrafo 3, quando um residente de um Estado Contratante exerce atividade no outro Estado Contratante por meio de um estabelecimento permanente aí situado, serão atribuídos a esse Estado Permanente, em cada Estado Contratante, os lucros que ele possa auferir. Espera-se que faça se fosse uma pessoa distinta e separada envolvida nas mesmas atividades ou similares sob condições iguais ou similares e lidando totalmente independente com o residente e com qualquer outra pessoa relacionada ao residente (na acepção do parágrafo 2 do Artigo). IX (pessoas relacionadas)).
3. Para determinar os lucros cessantes de um estabelecimento estável, são permitidas, a título de dedução, as despesas efectuadas para efeitos do estabelecimento permanente, incluindo as despesas de natureza executiva e as despesas administrativas gerais, efectuadas no Estado em que o estabelecimento estável está situado. ou em outro lugar. Nada neste parágrafo exigirá a um Estado Contratante a permissão de dedução de qualquer despesa que, por sua natureza, não seja geralmente permitida como uma dedução segundo a legislação tributária desse Estado.
4. Nenhum lucro comercial será atribuído a um estabelecimento permanente de um residente de um Estado Contratante em razão de seu uso, seja pela mera compra de bens ou mercadorias, seja pela mera prestação de serviços ou instalações executivas, gerenciais ou administrativas para tais residentes. .
5. Para os fins dos parágrafos anteriores, os lucros da empresa a serem atribuídos a um estabelecimento permanente serão determinados pelo mesmo método ano a ano, a menos que haja uma boa e suficiente razão para o contrário.
6. Quando os lucros das empresas incluírem elementos de rendimentos tratados separadamente nos outros Artigos da presente Convenção, as disposições desses Artigos não serão afetadas pelas disposições do presente Artigo.
7. Para os fins da Convenção, os lucros das empresas atribuíveis a um estabelecimento permanente incluirão apenas os lucros derivados dos bens ou atividades do estabelecimento permanente.
Artigo VIII.
Transporte.
1. Não obstante as disposições dos Artigos VII (Lucros das Empresas), XII (Royalties) e XIII (Ganhos), lucros auferidos por um residente de um Estado Contratante da operação de navios ou aeronaves em tráfego internacional, e ganhos obtidos por um residente de Um Estado Contratante da alienação de navios, aeronaves ou contêineres (incluindo reboques e equipamento correlacionado para o transporte de contêineres) utilizados principalmente no tráfego internacional, estará isento de impostos no outro Estado Contratante.
2. Para os fins da presente Convenção, os lucros auferidos por um residente de um Estado Contratante da operação de navios ou aeronaves no tráfego internacional incluem lucros de:
a) O aluguer de navios ou aeronaves utilizados no tráfego internacional;
b) A utilização, manutenção ou aluguer de contentores (incluindo reboques e equipamento conexo para o transporte de contentores) utilizados no tráfego internacional; e.
c) Aluguer de navios, aeronaves ou contentores (incluindo reboques e equipamento afim para o transporte de contentores), desde que esses lucros sejam acessórios para os lucros referidos nos n. os 1, 2, alínea a) ou 2, alínea b).
3. Não obstante as disposições do Artigo VII (Lucros das Empresas), os lucros auferidos por um residente de um Estado Contratante de uma viagem de um navio cujo objetivo principal seja transportar passageiros ou bens entre lugares situados no outro Estado Contratante. tributados nesse outro Estado.
4. Não obstante as disposições dos Artigos VII (Lucros das Empresas) e XII (Royalties), os lucros de um residente de um Estado Contratante que participe na exploração de veículos motorizados ou de uma linha férrea como transportadora comum ou transportadora contratual derivada de:
(a) o transporte de passageiros ou bens entre um ponto fora do outro Estado Contratante e qualquer outro ponto; ou.
b) Aluguer de veículos a motor (incluindo reboques) ou material circulante ferroviário ou a utilização, manutenção ou aluguer de contentores (incluindo reboques e equipamento afim para o transporte de contentores) utilizados para transportar passageiros ou bens entre um ponto fora do outro; Estado Contratante e qualquer outro ponto.
estarão isentos de imposto nesse outro Estado Contratante.
5. O disposto nos parágrafos 1, 3 e 4 aplicar-se-á também aos lucros ou ganhos referidos nesses parágrafos, obtidos por um residente de um Estado Contratante da participação em um grupo, em uma empresa mista ou em uma agência internacional de operações.
6. Não obstante as disposições do Artigo XII (Royalties), os lucros auferidos por um residente de um Estado Contratante da utilização, manutenção ou aluguel de material ferroviário rolante, veículos automotores, reboques ou contêineres (incluindo reboques e equipamento relacionado para o transporte de contêineres) ) utilizados no outro Estado Contratante durante um período ou períodos que não deverão exceder, no total, 183 dias em qualquer período de doze meses, serão isentos de imposto no outro Estado Contratante, excepto na medida em que esses lucros sejam atribuíveis a um estabelecimento estável no outro Estado e tributável no outro Estado, em virtude do Artigo VII (Lucros das Empresas).
Artigo IX.
Pessoas envolvidas.
1. Quando uma pessoa em um Estado Contratante e uma pessoa no outro Estado Contratante estiverem relacionadas e onde os acordos entre eles diferirem daqueles que seriam feitos entre pessoas não relacionadas, cada Estado poderá ajustar o valor da renda, perda ou imposto a pagar. para refletir os rendimentos, deduções, créditos ou subsídios que seriam, mas para esses acordos, levados em conta no cálculo de tal receita, perda ou imposto.
2. Para efeitos do presente artigo, considera-se que uma pessoa está coligada com outra pessoa, se uma das pessoas participa directa ou indirectamente na gestão ou no controlo da outra, ou se um terceiro ou uma pessoa participa directa ou indirectamente na gestão. ou controle de ambos.
3. Quando for feito ou feito por um Estado Contratante em conformidade com o parágrafo 1, o outro Estado Contratante efetuará (não obstante qualquer tempo ou limitações procedimentais na legislação interna desse outro Estado) um ajuste correspondente ao rendimento, perda ou imposto da pessoa relacionada nesse outro Estado se:
(a) concorda com o primeiro ajuste mencionado; e.
b) No prazo de seis anos a contar do final do ano fiscal a que se refere o primeiro ajustamento, a autoridade competente do outro Estado foi notificada do primeiro ajustamento. As autoridades competentes, no entanto, podem concordar em considerar casos em que o ajuste correspondente não seria impedido de outra forma por qualquer tempo ou limitações processuais no outro Estado, mesmo que a notificação não seja feita dentro do prazo de seis anos.
4. Caso a notificação a que se refere o n. º 3 não seja dada dentro do prazo nele referido e as autoridades competentes não tenham acordado em considerar o caso em conformidade com a alínea b) do n. º 3, a autoridade competente do Estado-Membro O Estado Contratante que tiver feito ou fará o primeiro ajuste mencionado poderá, se for o caso, conceder a isenção da dupla tributação.
5. O disposto nos n. os 3 e 4 não é aplicável em caso de fraude, omissão intencional ou negligência ou negligência grave.
1. Os dividendos pagos por uma sociedade residente de um Estado Contratante a um residente do outro Estado Contratante podem ser tributados nesse outro Estado.
2. Contudo, esses dividendos podem também ser tributados no Estado Contratante de que a empresa que paga os dividendos é residente e de acordo com as leis desse Estado; mas se um residente do outro Estado Contratante for o beneficiário efetivo de tais dividendos, o imposto assim cobrado não excederá:
(a) 5 por cento do montante bruto dos dividendos, se o beneficiário efectivo for uma empresa que detenha pelo menos 10 por cento do capital votante da empresa que paga os dividendos;
(b) 15 por cento do montante bruto dos dividendos em todos os outros casos.
Este parágrafo não afetará a tributação da empresa em relação aos lucros dos quais os dividendos são pagos.
3. O termo "dividendos", tal como utilizado neste Artigo, significa rendimentos de acções ou outros direitos, não sendo créditos, participando em lucros, assim como rendimentos sujeitos ao mesmo tratamento fiscal que o rendimento de acções pela legislação tributária do Estado do qual a empresa que faz a distribuição é residente.
4. O disposto no parágrafo 2 não se aplica se o beneficiário efectivo dos dividendos, sendo um residente de um Estado Contratante, exercer a actividade no outro Estado Contratante de que a sociedade que paga os dividendos for residente, através de um estabelecimento permanente situado therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article VII (Business Profits) or Article XIV (Independent Personal Services), as the case may be, shallapply.
5. Where a company is a resident of a Contracting State, the other Contracting State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.
6. Nothing in this Convention shall be construed as preventing a Contracting State from imposing a tax on the earnings of a company attributable to permanent establishments in that State, in addition to the tax which would be chargeable on the earnings of a company which is a resident of that State, provided that any additional tax so imposed shall not exceed 5 per cent of the amount of such earnings which have not been subjected to such additional tax in previous taxation years. For the purposes of this paragraph, the term "earnings" means the amount by which the business profits attributable to permanent establishments in a Contracting State (including gains from the alienation of property forming part of the business property of such permanent establishments) in a year and previous years exceeds the sum of:
(a) business losses attributable to such permanent establishments (including losses from the alienation of property forming part of the business property of such permanent establishments) in such year and previous years;
(b) all taxes, other than the additional tax referred to in this paragraph, imposed on such profits in that State;
(c) the profits reinvested in that State, provided that where that State is Canada, such amount shall be determined in accordance with the existing provisions of the law of Canada regarding the computation of the allowance in respect of investment in property in Canada, and any subsequent modification of those provisions which shall not affect the general principle hereof; e.
(d) five hundred thousand Canadian dollars ($500,000) or its equivalent in United States currency, less any amounts deducted by the company, or by an associated company with respect to the same or a similar business, under this subparagraph (d); for the purposes of this subparagraph (d) a company is associated with another company if one company directly or indirectly controls the other, or both companies are directly or indirectly controlled by the same person or persons, or if the two companies deal with each other not at arm's length.
7. Notwithstanding the provisions of paragraph 2,
(a) dividends paid by a company that is a resident of Canada and a non-resident-owned investment corporation to a company that is a resident of the United States, that owns at least 10 per cent of the voting stock of the company paying the dividends and that is the beneficial owner of such dividends, may be taxed in Canada at a rate not exceeding 10 per cent of the gross amount of the dividends;
(b) paragraph 2(b) and not paragraph 2(a) shall apply in the case of dividends paid by a resident of the United States that is a Regulated Investment Company; e.
(c) Paragraph 2(a) shall not apply to dividends paid by a resident of the United States that is a Real Estate Investment Trust, and paragraph 2(b) shall apply only where such dividends are beneficially owned by an individual holding an interest of less than 10 per cent in the trust; otherwise the rate of tax applicable under the domestic law of the United States shall apply. Where an estate or a testamentary trust acquired its interest in a Real Estate Investment Trust as a consequence of an individual's death, for the purposes of the preceding sentence the estate or trust shall for the five-year period following the death be deemed with respect to that interest to be an individual.
8. Notwithstanding the provisions of paragraph 5, a company which is a resident of Canada and which has income subject to tax in the United States (without regard to the provisions of the Convention) may be liable to the United States accumulated earnings tax and personal holding company tax but only if 50 per cent or more in value of the outstanding voting shares of the company is owned, directly or indirectly, throughout the last half of its taxable year by citizens or residents of the United States (other than citizens of Canada who do not have immigrant status in the United States or who have not been residents in the United States for more than three taxable years) or by residents of a third state.
Article XI.
1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of such interest, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.
3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State if:
(a) the interest is beneficially owned by the other Contracting State, a political subdivision or local authority thereof or an instrumentality of such other State, subdivision or authority, and is not subject to tax by that other State;
(b) the interest is beneficially owned by a resident of the other Contracting State and is paid with respect to debt obligations issued at arm's length and guaranteed or insured by that other State or a political subdivision thereof or an instrumentality of such other State or subdivision which is not subject to tax by that other State;
(c) the interest is beneficially owned by a resident of the other Contracting State and is paid by the first-mentioned State, a political subdivision or local authority thereof or an instrumentality of such first-mentioned State, subdivision or authority which is not subject to tax by that first-mentioned State;
(d) the interest is beneficially owned by a resident of the other Contracting State and is paid with respect to indebtedness arising as a consequence of the sale on credit by a resident of that other State of any equipment, merchandise or services except where the sale or indebtedness was between related persons; ou.
(e) the interest is paid by a company created under the laws in force in the other Contracting State with respect to an obligation entered into before the date of signature of this Convention, provided that such interest would have been exempt from tax in the first-mentioned State under Article XII of the 1942 Convention.
4. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income assimilated to income from money lent by the taxation laws of the Contracting State in which the income arises. However, the term "interest" does not include income dealt with in Article X (Dividends).
5. The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article VII (Business Profits) or Article XIV (Independent Personal Services), as the case may be, shall apply.
6. For the purposes of this Article, interest shall be deemed to arise in a Contracting State when the payer is that State itself, or a political subdivision, local authority or resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a State other than that of which he is a resident a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated and not in the State of which the payer is a resident.
7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of the Convention.
8. Where a resident of a Contracting State pays interest to a person other than a resident of the other Contracting State, that other State may not impose any tax on such interest except insofar as it arises in that other State or insofar as the debt-claim in respect of which the interest is paid is effectively connected with a permanent establishment or a fixed base situated in that other State.
9. The provisions of paragraphs 2 and 3 shall not apply to an excess inclusion with respect to a residual interest in a Real Estate Mortgage Investment Conduit to which Section 860G of the United States Internal Revenue Code , as it may be amended from time to time without changing the general principle thereof, applies.
Article XII.
1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of such royalties, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.
3. Notwithstanding the provisions of paragraph 2,
(a) copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or artistic work (other than payments in respect of motion pictures and works on film, videotape or other means of reproduction for use in connection with television);
(b) payments for the use of, or the right to use, computer software;
(c) payments for the use of, or the right to use, any patent or any information concerning industrial, commercial or scientific experience (but not including any such information provided in connection with a rental or franchise agreement); e.
(d) payments with respect to broadcasting as may be agreed for the purposes of this paragraph in an exchange of notes between the Contracting States;
arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.
4. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including motion pictures and works on film, videotape or other means of reproduction for use in connection with television), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, tangible personal property or for information concerning industrial, commercial or scientific experience, and, notwithstanding the provisions of Article XIII (Gains), includes gains from the alienation of any intangible property or rights described in this paragraph to the extent that such gains are contingent on the productivity, use or subsequent disposition of such property or rights.
5. The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article VII (Business Profits) or Article XIV (Independent Personal Services), as the case may be, shall apply.
6. For the purposes of this Article,
(a) royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a State a permanent establishment or a fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated and not in any other State of which the payer is a resident; e.
(b) where subparagraph (a) does not operate to treat royalties as arising in either Contracting State and the royalties are for the use of, or the right to use, intangible property or tangible personal property in a Contracting State, then such royalties shall be deemed to arise in that State.
7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.
8. Where a resident of a Contracting State pays royalties to a person other than a resident of the other Contracting State, that other State may not impose any tax on such royalties except insofar as they arise in that other State or insofar as the right or property in respect of which the royalties are paid is effectively connected with a permanent establishment or a fixed base situated in that other State.
Article XIII.
1. Gains derived by a resident of a Contracting State from the alienation of real property situated in the other Contracting State may be taxed in that other State.
2. Gains from the alienation of personal property forming part of the business property of a permanent establishment which a resident of a Contracting State has or had (within the twelve-month period preceding the date of alienation) in the other Contracting State or of personal property pertaining to a fixed base which is or was available (within the twelve-month period preceding the date of alienation) to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment or of such a fixed base, may be taxed in that other State.
3. For the purposes of this Article the term "real property situated in the other Contracting State"
(a) In the case of real property situated in the United States, means a United States real property interest and real property referred to in Article VI (Income from Real Property) situated in the United States, but does not include a share of the capital stock of a company that is not a resident of the United States; e.
(b) in the case of real property situated in Canada means:
(i) real property referred to in Article VI (Income from Real Property) situated in Canada;
(ii) a share of the capital stock of a company that is a resident of Canada, the value of whose shares is derived principally from real property situated in Canada; e.
(iii) an interest in a partnership, trust or estate, the value of which is derived principally from real property situated in Canada.
4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 shall be taxable only in the Contracting State of which the alienator is a resident.
5. The provisions of paragraph 4 shall not affect the right of a Contracting State to levy tax on gains from the alienation of property derived by an individual who is a resident of the other Contracting State if such individual:
(a) was a resident of the first-mentioned State for 120 months during any period of 20 consecutive years preceding the alienation of the property; e.
(b) was a resident of the first-mentioned State at any time during the ten years immediately preceding the alienation of the property;
and if such property (or property for which such property was substituted in an alienation the gain on which was not recognized for the purposes of taxation in the first-mentioned State) was owned by the individual at the time he ceased to be a resident of the first-mentioned State.
6. Where an individual (other than a citizen of the United States) who was a resident of Canada became a resident of the United States, in determining his liability to United States taxation in respect of any gain from the alienation of a principal residence in Canada owned by him at the time he ceased to be a resident of Canada, the adjusted basis of such property shall be no less than its fair market value at that time.
7. Where at any time an individual is treated for the purposes of taxation by a Contracting State as having alienated a property and is taxed in that State by reason thereof and the domestic law of the other Contracting State at such time defers (but does not forgive) taxation, that individual may elect in his annual return of income for the year of such alienation to be liable to tax in the other Contracting State in that year as if he had, immediately before that time, sold and repurchased such property for an amount equal to its fair market value at that time.
8. Where a resident of a Contracting State alienates property in the course of a corporate or other organization, reorganization, amalgamation, division or similar transaction and profit, gain or income with respect to such alienation is not recognized for the purpose of taxation in that State, if requested to do so by the person who acquires the property, the competent authority of the other Contracting State may agree, in order to avoid double taxation and subject to terms and conditions satisfactory to such competent authority, to defer the recognition of the profit, gain or income with respect to such property for the purpose of taxation in that other State until such time and in such manner as may be stipulated in the agreement.
9. Where a person who is a resident of a Contracting State alienates a capital asset which may in accordance with this Article be taxed in the other Contracting State and.
(a) that person owned the asset on September 26, 1980 and was resident in the first-mentioned State on that date; ou.
(b) the asset was acquired by that person in an alienation of property which qualified as a non-recognition transaction for the purposes of taxation in that other State;
the amount of the gain which is liable to tax in that other State in accordance with this Article shall be reduced by the proportion of the gain attributable on a monthly basis to the period ending on December 31 of the year in which the Convention enters into force, or such greater portion of the gain as is shown to the satisfaction of the competent authority of the other State to be reasonably attributable to that period. For the purposes of this paragraph the term "non-recognition transaction" includes a transaction to which paragraph 8 applies and, in the case of taxation in the United States, a transaction that would have been a non-recognition transaction but for Sections 897(d) and 897(e) of the Internal Revenue Code . The provisions of this paragraph shall not apply to.
(c) an asset that on September 26, 1980 formed part of the business property of a permanent establishment or pertained to a fixed base of a resident of a Contracting State situated in the other Contracting State;
(d) an alienation by a resident of a Contracting State of an asset that was owned at any time after September 26, 1980 and before such alienation by a person who was not at all times after that date while the asset was owned by such person a resident of that State; ou.
(e) an alienation of an asset that was acquired by a person at any time after September 26, 1980 and before such alienation in a transaction other than a non-recognition transaction.
Article XIV.
Independent Personal Services.
Income derived by an individual who is a resident of a Contracting State in respect of independent personal services may be taxed in that State. Such income may also be taxed in the other Contracting State if the individual has or had a fixed base regularly available to him in that other State but only to the extent that the income is attributable to the fixed base.
Article XV.
Dependent Personal Services.
1. Subject to the provisions of Articles XVIII (Pensions and Annuities) and XIX (Government Service), salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in a calendar year in the other Contracting State shall be taxable only in the first-mentioned State if:
(a) such remuneration does not exceed ten thousand dollars ($10,000) in the currency of that other State; ou.
(b) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in that year and the remuneration is not borne by an employer who is a resident of that other State or by a permanent establishment or a fixed base which the employer has in that other State.
3. Notwithstanding the provisions of paragraphs 1 and 2, remuneration derived by a resident of a Contracting State in respect of an employment regularly exercised in more than one State on a ship, aircraft, motor vehicle or train operated by a resident of that Contracting State shall be taxable only in that State.
Article XVI.
Artistes and Athletes.
1. Notwithstanding the provisions of Articles XIV (Independent Personal Services) and XV (Dependent Personal Services), income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State, except where the amount of the gross receipts derived by such entertainer or athlete, including expenses reimbursed to him or borne on his behalf, from such activities do not exceed fifteen thousand dollars ($15,000) in the currency of that other State for the calendar year concerned.
2. Where income in respect of personal activities exercised by an entertainer or an athlete in his capacity as such accrues not to the entertainer or athlete but to another person, that income may, notwithstanding the provisions of Articles VII (Business Profits), XIV (Independent Personal Services) and XV (Dependent Personal Services), be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised. For the purposes of the preceding sentence, income of an entertainer or athlete shall be deemed not to accrue to another person if it is established that neither the entertainer or athlete, nor persons related thereto, participate directly or indirectly in the profits of such other person in any manner, including the receipt of deferred remuneration, bonuses, fees, dividends, partnership distributions or other distributions.
3. The provisions of paragraphs 1 and 2 shall not apply to the income of:
(a) an athlete in respect of his activities as an employee of a team which participates in a league with regularly scheduled games in both Contracting States; ou.
(b) a team described in subparagraph (a).
4. Notwithstanding the provisions of Articles XIV (Independent Personal Services) and XV (Dependent Personal Services) an amount paid by a resident of a Contracting State to a resident of the other Contracting State as an inducement to sign an agreement relating to the performance of the services of an athlete (other than an amount referred to in paragraph 1 of Article XV (Dependent Personal Services) may be taxed in the first-mentioned State, but the tax so charged shall not exceed 15 per cent of the gross amount of such payment.
Article XVII.
Withholding of Taxes in Respect of Personal Services.
1. Deduction and withholding of tax on account of the tax liability for a taxable year on remuneration paid to an individual who is a resident of a Contracting State (including an entertainer or athlete) in respect of the performance of independent personal services in the other Contracting State may be required by that other State, but with respect to the first five thousand dollars ($5,000) in the currency of that other State, paid as remuneration in that taxable year by each payer, such deduction and withholding shall not exceed 10 per cent of the payment.
2. Where the competent authority of a Contracting State considers that an amount that would otherwise be deducted or withheld from any amount paid or credited to an individual who is a resident of the other Contracting State in respect of the performance of personal services in the first-mentioned State is excessive in relation to the estimated tax liability for the taxable year of that individual in the first-mentioned State, it may determine that a lesser amount will be deducted or withheld.
3. The provisions of this Article shall not affect the liability of a resident of a Contracting State referred to in paragraph 1 or 2 for tax imposed by the other Contracting State.
Article XVIII.
Pensions and Annuities.
1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such pension that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State.
(a) pensions may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of a periodic pension payment, the tax so charged shall not exceed 15 per cent of the gross amount of such payment; e.
(b) annuities may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of an annuity payment, the tax so charged shall not exceed 15 per cent of the portion of such payment that would not be excluded from taxable income in the first-mentioned State if the beneficial owner were a resident thereof.
3. For the purposes of this Convention, the term "pensions" includes any payment under a superannuation, pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances and amounts paid under a sickness, accident or disability plan, but does not include payments under an income-averaging annuity contract or, except for the purposes of Article XIX (Government Service), any benefit referred to in paragraph 5.
4. For the purposes of the Convention, the term "annuities" means a stated sum paid periodically at stated times during life or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered), but does not include a payment that is not a periodic payment or any annuity the cost of which was deductible for the purposes of taxation in the Contracting State in which it was acquired.
5. Benefits under the social security legislation in a Contracting State (including tier 1 railroad retirement benefits but not including unemployment benefits) paid to a resident of the other Contracting State shall be taxable only in that other State, subject to the following conditions:
(a) a benefit under the social security legislation in the United States paid to a resident of Canada shall be taxable in Canada as though it were a benefit under the Canada Pension Plan, except that 15 per cent of the amount of the benefit shall be exempt from Canadian tax; e.
(b) a benefit under the social security legislation in Canada paid to a resident of the United States shall be taxable in the United States as though it were a benefit under the Social Security Act, except that a type of benefit that is not subject to Canadian tax when paid to residents of Canada shall be exempt from United States tax.
6. Alimony and other similar amounts (including child support payments) arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable as follows:
(a) such amounts shall be taxable only in that other State;
(b) notwithstanding the provisions of subparagraph (a), the amount that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State.
7. A natural person who is a citizen or resident of a Contracting State and a beneficiary of a trust, company, organization or other arrangement that is a resident of the other Contracting State, generally exempt from income taxation in that other State and operated exclusively to provide pension, retirement or employee benefits may elect to defer taxation in the first-mentioned State, under rules established by the competent authority of that State, with respect to any income accrued in the plan but not distributed by the plan, until such time as and to the extent that a distribution is made from the plan or any plan substituted therefore.
Article XIX.
Government Service.
Remuneration, other than a pension, paid by a Contracting State or a political subdivision or local authority thereof to a citizen of that State in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that State. However, the provisions of Article XIV (Independent Personal Services), XV (Dependent Personal Services) or XVI (Artistes and Athletes), as the case may be, shall apply, and the preceding sentence shall not apply, to remuneration paid in respect of services rendered in connection with a trade or business carried on by a Contracting State or a political subdivision or local authority thereof.
Article XX.
Payments which a student, apprentice or business trainee, who is or was immediately before visiting a Contracting State a resident of the other Contracting State, and who is present in the first-mentioned State for the purpose of his full-time education or training, receives for the purpose of his maintenance, education or training shall not be taxed in that State provided that such payments are made to him from outside that State.
Article XXI.
Exempt Organizations.
1. Subject to the provisions of paragraph 3, income derived by a religious, scientific, literary, educational or charitable organization shall be exempt from tax in a Contracting State if it is resident in the other Contracting State but only to the extent that such income is exempt from tax in that other State.
2. Subject to the provisions of paragraph 3, income referred to in Articles X (Dividends) and XI (Interest) derived by:
(a) a trust, company, organization or other arrangement that is a resident of a Contracting State, generally exempt from income taxation in a taxable year in that State and operated exclusively to administer or provide pension, retirement or employee benefits; ou.
(b) a trust, company, organization or other arrangement that is a resident of a Contracting State, generally exempt from income taxation in a taxable year in that State and operated exclusively to earn income for the benefit of an organization referred to in subparagraph (a);
shall be exempt from income taxation in that taxable year in the other Contracting State.
3. The provisions of paragraphs 1 and 2 shall not apply with respect to the income of a trust, company, organization or other arrangement from carrying on a trade or business or from a related person other than a person referred to in paragraph 1 or 2.
4. A religious, scientific, literary, educational or charitable organization which is resident in Canada and which has received substantially all of its support from persons other than citizens or residents of the United States shall be exempt in the United States from the United States excise taxes imposed with respect to private foundations.
5. For the purposes of United States taxation, contributions by a citizen or resident of the United States to an organization which is resident in Canada, which is generally exempt from Canadian tax and which could qualify in the United States to receive deductible contributions if it were resident in the United States shall be treated as charitable contributions; however, such contributions (other than such contributions to a college or university at which the citizen or resident or a member of his family is or was enrolled) shall not be deductible in any taxable year to the extent that they exceed an amount determined by applying the percentage limitations of the laws of the United States in respect of the deductibility of charitable contributions to the income of such citizen or resident arising in Canada. The preceding sentence shall not be interpreted to allow in any taxable year deductions for charitable contributions in excess of the amount allowed under the percentage limitations of the laws of the United States in respect of the deductibility of charitable contributions. For the purposes of this paragraph, a company that is a resident of Canada and that is taxable in the United States as if it were a resident of the United States shall be deemed to be a resident of the United States.
6. For the purposes of Canadian taxation, gifts by a resident of Canada to an organization that is a resident of the United States, that is generally exempt from United States tax and that could qualify in Canada as a registered charity if it were a resident of Canada and created or established in Canada, shall be treated as gifts to a registered charity; however, no relief from taxation shall be available in any taxation year with respect to such gifts (other than such gifts to a college or university at which the resident or a member of the resident's family is or was enrolled) to the extent that such relief would exceed the amount of relief that would be available under the Income Tax Act if the only income of the resident for that year were the resident's income arising in the United States. The preceding sentence shall not be interpreted to allow in any taxation year relief from taxation for gifts to registered charities in excess of the amount of relief allowed under the percentage limitations of the laws of Canada in respect of relief for gifts to registered charities.
Article XXII.
Other Income.
1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State, except that if such income arises in the other Contracting State it may also be taxed in that other State.
2. To the extent that income distributed by an estate or trust is subject to the provisions of paragraph 1, then, notwithstanding such provisions, income distributed by an estate or trust which is a resident of a Contracting State to a resident of the other Contracting State who is a beneficiary of the estate or trust may be taxed in the first-mentioned State and according to the laws of that State, but the tax so charged shall not exceed 15 per cent of the gross amount of the income; provided, however, that such income shall be exempt from tax in the first-mentioned State to the extent of any amount distributed out of income arising outside that State.
3. Losses incurred by a resident of a Contracting State with respect to wagering transactions the gains on which may be taxed in the other Contracting State shall, for the purpose of taxation in that other State, be deductible to the same extent that such losses would be deductible if they were incurred by a resident of that other State.
Article XXIII.
1. Capital represented by real property, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.
2. Capital represented by personal property forming part of the business property of a permanent establishment which a resident of a Contracting State has in the other Contracting State, or by personal property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other State.
3. Capital represented by ships and aircraft operated by a resident of a Contracting State in international traffic, and by personal property pertaining to the operation of such ships and aircraft, shall be taxable only in that State.
4. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.
Article XXIV.
Elimination of Double Taxation.
1. In the case of the United States, subject to the provisions of paragraphs 4, 5 and 6, double taxation shall be avoided as follows: In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a citizen or resident of the United States, or to a company electing to be treated as a domestic corporation, as a credit against the United States tax on income the appropriate amount of income tax paid or accrued to Canada; and, in the case of a company which is a resident of the United States owning at least 10 per cent of the voting stock of a company which is a resident of Canada from which it receives dividends in any taxable year, the United States shall allow as a credit against the United States tax on income the appropriate amount of income tax paid or accrued to Canada by that company with respect to the profits out of which such dividends are paid.
2. In the case of Canada, subject to the provisions of paragraphs 4, 5 and 6, double taxation shall be avoided as follows:
(a) subject to the provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions (which shall not affect the general principle hereof)
(i) income tax paid or accrued to the United States on profits, income or gains arising in the United States, and.
(ii) in the case of an individual, any social security taxes paid to the United States (other than taxes relating to unemployment insurance benefits) by the individual on such profits, income or gains.
shall be deducted from any Canadian tax payable in respect of such profits, income or gains;
(b) subject to the existing provisions of the law of Canada regarding the taxation of income from a foreign affiliate and to any subsequent modification of those provisions - which shall not affect the general principle hereof - for the purpose of computing Canadian tax, a company which is a resident of Canada shall be allowed to deduct in computing its taxable income any dividend received by it out of the exempt surplus of a foreign affiliate which is a resident of the United States; e.
(c) notwithstanding the provisions of subparagraph (a), where Canada imposes a tax on gains from the alienation of property that, but for the provisions of paragraph 5 of Article XIII (Gains), would not be taxable in Canada, income tax paid or accrued to the United States on such gains shall be deducted from any Canadian tax payable in respect of such gains.
3. For the purposes of this Article:
(a) profits, income or gains (other than gains to which paragraph 5 of Article XIII (Gains) applies) of a resident of a Contracting State which may be taxed in the other Contracting State in accordance with the Convention (without regard to paragraph 2 of Article XXIX (Miscellaneous Rules)) shall be deemed to arise in that other State; e.
(b) profits, income or gains of a resident of a Contracting State which may not be taxed in the other Contracting State in accordance with the Convention (without regard to paragraph 2 of Article XXIX (Miscellaneous Rules)) or to which paragraph 5 of Article XIII (Gains) applies shall be deemed to arise in the first-mentioned State.
4. Where a United States citizen is a resident of Canada, the following rules shall apply:
(a) Canada shall allow a deduction from the Canadian tax in respect of income tax paid or accrued to the United States in respect of profits, income or gains which arise (within the meaning of paragraph 3) in the United States, except that such deduction need not exceed the amount of the tax that would be paid to the United States if the resident were not a United States citizen; e.
(b) for the purposes of computing the United States tax, the United States shall allow as a credit against United States tax the income tax paid or accrued to Canada after the deduction referred to in subparagraph (a). The credit so allowed shall not reduce that portion of the United States tax that is deductible from Canadian tax in accordance with subparagraph (a).
5. Notwithstanding the provisions of paragraph 4, where a United States citizen is a resident of Canada, the following rules shall apply in respect of the items of income referred to in Article X (Dividends), XI (Interest) or XII (Royalties) that arise (within the meaning of paragraph 3) in the United States and that would be subject to United States tax if the resident of Canada were not a citizen of the United States, as long as the law in force in Canada allows a deduction in computing income for the portion of any foreign tax paid in respect of such items which exceeds 15 per cent of the amount thereof:
(a) the deduction so allowed in Canada shall not be reduced by any credit or deduction for income tax paid or accrued to Canada allowed in computing the United States tax on such items;
(b) Canada shall allow a deduction from Canadian tax on such items in respect of income tax paid or accrued to the United States on such items, except that such deduction need not exceed the amount of the tax that would be paid on such items to the United States if the resident of Canada were not a United States citizen; e.
(c) for the purposes of computing the United States tax on such items, the United States shall allow as a credit against United States tax the income tax paid or accrued to Canada after the deduction referred to in subparagraph (b). The credit so allowed shall reduce only that portion of the United States tax on such items which exceeds the amount of tax that would be paid to the United States on such items if the resident of Canada were not a United States citizen.
6. Where a United States citizen is a resident of Canada, items of income referred to in paragraph 4 or 5 shall, notwithstanding the provisions of paragraph 3, be deemed to arise in Canada to the extent necessary to avoid the double taxation of such income under paragraph 4(b) or paragraph 5(c).
7. For the purposes of this Article, any reference to "income tax paid or accrued" to a Contracting State shall include Canadian tax and United States tax, as the case may be, and taxes of general application which are paid or accrued to a political subdivision or local authority of that State, which are not imposed by that political subdivision or local authority in a manner inconsistent with the provisions of the Convention and which are substantially similar to the Canadian tax or United States tax, as the case may be.
8. Where a resident of a Contracting State owns capital which, in accordance with the provisions of the Convention, may be taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the capital of that resident an amount equal to the capital tax paid in that other State. The deduction shall not, however, exceed that part of the capital tax, as computed before the deduction is given, which is attributable to the capital which may be taxed in that other State.
9. The provisions of this Article relating to the source of profits, income or gains shall not apply for the purpose of determining a credit against United States tax for any foreign taxes other than income taxes paid or accrued to Canada.
10. Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on other income or capital, take into account the exempted income or capital.
Article XXV.
Non-Discrimination.
1. Citizens of a Contracting State, who are residents of the other Contracting State, shall not be subjected in that other State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which citizens of that other State in the same circumstances are or may be subjected.
2. Citizens of a Contracting State, who are not residents of the other Contracting State, shall not be subjected in that other State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which citizens of any third State in the same circumstances (including State of residence) are or may be subjected.
3. In determining the taxable income or tax payable of an individual who is a resident of a Contracting State, there shall be allowed as a deduction in respect of any other person who is a resident of the other Contracting State and who is dependent on the individual for support the amount that would be so allowed if that other person were a resident of the first-mentioned State.
4. Where a married individual who is a resident of Canada and not a citizen of the United States has income that is taxable in the United States pursuant to Article XV (Dependent Personal Services), the United States tax with respect to such income shall not exceed such proportion of the total United States tax that would be payable for the taxable year if both the individual and his spouse were United States citizens as the individual's taxable income determined without regard to this paragraph bears to the amount that would be the total taxable income of the individual and his spouse. For the purposes of this paragraph,
(a) the "total United States tax" shall be determined as if all the income of the individual and his spouse arose in the United States; e.
(b) a deficit of the spouse shall not be taken into account in determining taxable income.
5. Any company which is a resident of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar companies of the first-mentioned State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of a third State, are or may be subjected.
6. Notwithstanding the provisions of Article XXIV (Elimination of Double Taxation), the taxation on a permanent establishment which a resident of a Contracting State has in the other Contracting State shall not be less favourably levied in the other State than the taxation levied on residents of the other State carrying on the same activities. This paragraph shall not be construed as obliging a Contracting State:
(a) to grant to a resident of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents; ou.
(b) to grant to a company which is a resident of the other Contracting State the same tax relief that it provides to a company which is a resident of the first-mentioned State with respect to dividends received by it from a company.
7. Except where the provisions of paragraph 1 of Article IX (Related Persons), paragraph 7 of Article XI (Interest) or paragraph 7 of Article XII (Royalties) apply, interest, royalties and other disbursements paid by a resident of a Contracting State to a resident of the other Contracting State shall, for the purposes of determining the taxable profits of the first-mentioned resident, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State. Similarly, any debts of a resident of a Contracting State to a resident of the other Contracting State shall, for the purposes of determining the taxable capital of the first-mentioned resident, be deductible under the same conditions as if they had been contracted to a resident of the first-mentioned State.
8. The provisions of paragraph 7 shall not affect the operation of any provision of the taxation laws of a Contracting State:
(a) relating to the deductibility of interest and which is in force on the date of signature of this Convention (including any subsequent modification of such provisions that does not change the general nature thereof); ou.
(b) adopted after such date by a Contracting State and which is designed to ensure that a person who is not a resident of that State does not enjoy, under the laws of that State, a tax treatment that is more favorable than that enjoyed by residents of that State.
9. Expenses incurred by a citizen or resident of a Contracting State with respect to any convention (including any seminar, meeting, congress or other function of a similar nature) held in the other Contracting State shall, for the purposes of taxation in the first-mentioned State, be deductible to the same extent that such expenses would be deductible if the convention were held in the first-mentioned State.
10. Notwithstanding the provisions of Article II (Taxes Covered), this Article shall apply to all taxes imposed by a Contracting State.
Article XXVI.
Mutual Agreement Procedure.
1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case in writing to the competent authority of the Contracting State of which he is a resident or, if he is a resident of neither Contracting State, of which he is a national.
2. The competent authority of the Contracting State to which the case has been presented shall endeavor, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Except where the provisions of Article IX (Related Persons) apply, any agreement reached shall be implemented notwithstanding any time or other procedural limitations in the domestic law of the Contracting States, provided that the competent authority of the other Contracting State has received notification that such a case exists within six years from the end of the taxable year to which the case relates.
3. The competent authorities of the Contracting States shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. In particular, the competent authorities of the Contracting States may agree:
(a) to the same attribution of profits to a resident of a Contracting State and its permanent establishment situated in the other Contracting State;
(b) to the same allocation of income, deductions, credits or allowances between persons;
(c) to the same determination of the source, and the same characterization, of particular items of income;
(d) to a common meaning of any term used in the Convention;
(e) to the elimination of double taxation with respect to income distributed by an estate or trust;
(f) to the elimination of double taxation with respect to a partnership;
(g) to provide relief from double taxation resulting from the application of the estate tax imposed by the United States or the Canadian tax as a result of a distribution or disposition of property by a trust that is a qualified domestic trust within the meaning of section 2056A of the Internal Revenue Code , or is described in subsection 70(6) of the Income Tax Act or is treated as such under paragraph 5 of Article XXIX B (Taxes Imposed by Reason of Death), in cases where no relief is otherwise available; ou.
(h) to increases in any dollar amounts referred to in the Convention to reflect monetary or economic developments.
They may also consult together for the elimination of double taxation in cases not provided for in the Convention.
4. Each of the Contracting States will endeavor to collect on behalf of the other Contracting State such amounts as may be necessary to ensure that relief granted by the Convention from taxation imposed by that other State does not enure to the benefit of persons not entitled thereto. However, nothing in this paragraph shall be construed as imposing on either of the Contracting States the obligation to carry out administrative measures of a different nature from those used in the collection of its own tax or which would be contrary to its public policy (ordre public).
5. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.
6. If any difficulty or doubt arising as to the interpretation or application of the Convention cannot be resolved by the competent authorities pursuant to the preceding paragraphs of this Article, the case may, if both competent authorities and the taxpayer agree, be submitted for arbitration, provided that the taxpayer agrees in writing to be bound by the decision of the arbitration board. The decision of the arbitration board in a particular case shall be binding on both States with respect to that case. The procedures shall be established in an exchange of notes between the Contracting States. The provisions of this paragraph shall have effect after the Contracting States have so agreed through the exchange of notes.
Article XXVI A.
Assistance in Collection.
1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in paragraph 9, together with interest, costs, additions to such taxes and civil penalties, referred to in this Article as a "revenue claim".
2. An application for assistance in the collection of a revenue claim shall include a certification by the competent authority of the applicant State that, under the laws of that State, the revenue claim has been finally determined. For the purposes of this Article, a revenue claim is finally determined when the applicant State has the right under its internal law to collect the revenue claim and all administrative and judicial rights of the taxpayer to restrain collection in the applicant State have lapsed or been exhausted.
3. A revenue claim of the applicant State that has been finally determined may be accepted for collection by the competent authority of the requested State and, subject to the provisions of paragraph 7, if accepted shall be collected by the requested State as though such revenue claim were the requested State's own revenue claim finally determined in accordance with the laws applicable to the collection of the requested State's own taxes.
4. Where an application for collection of a revenue claim in respect of a taxpayer is accepted.
(a) by the United States, the revenue claim shall be treated by the United States as an assessment under United States laws against the taxpayer as of the time the application is received; e.
(b) by Canada, the revenue claim shall be treated by Canada as an amount payable under the Income Tax Act , the collection of which is not subject to any restriction.
5. Nothing in this Article shall be construed as creating or providing any rights of administrative or judicial review of the applicant State's finally determined revenue claim by the requested State, based on any such rights that may be available under the laws of either Contracting State. If, at any time pending execution of a request for assistance under this Article, the applicant State loses the right under its internal law to collect the revenue claim, the competent authority of the applicant State shall promptly withdraw the request for assistance in collection.
6. Subject to this paragraph, amounts collected by the requested State pursuant to this Article shall be forwarded to the competent authority of the applicant State. Unless the competent authorities of the Contracting States otherwise agree, the ordinary costs incurred in providing collection assistance shall be borne by the requested State and any extraordinary costs so incurred shall be borne by the applicant State.
7. A revenue claim of an applicant State accepted for collection shall not have in the requested State any priority accorded to the revenue claims of the requested State.
8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that.
(a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and.
(b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in therequested State.
9. Notwithstanding the provisions of Article II (Taxes Covered), the provisions of this Article shall apply to all categories of taxes collected by or on behalf of the Government of a Contracting State.
10. Nothing in this Article shall be construed as:
(a) limiting the assistance provided for in paragraph 4 of Article XXVI (Mutual Agreement Procedure); ou.
(b) imposing on either Contracting State the obligation to carry out administrative measures of a different nature from those used in the collection of its own taxes or that would be contrary to its public policy (ordre public).
11. The competent authorities of the Contracting States shall agree upon the mode of application of this Article, including agreement to ensure comparable levels of assistance to each of the Contracting States.
Article XXVII.
Exchange of Information.
1. The competent authorities of the Contracting States shall exchange such information as is relevant for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes to which the Convention applies insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article I (Personal Scope). Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the taxation laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the administration and enforcement in respect of, or the determination of appeals in relation to the taxes to which the Convention applies or, notwithstanding paragraph 4, in relation to taxes imposed by a political subdivision or local authority of a Contracting State that are substantially similar to the taxes covered by the Convention under Article II (Taxes Covered). Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. The competent authorities may release to an arbitration board established pursuant to paragraph 6 of Article XXVI (Mutual Agreement Procedure) such information as is necessary for carrying out the arbitration procedure; the members of the arbitration board shall be subject to the limitations on disclosure described in this Article.
2. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall endeavor to obtain the information to which the request relates in the same way as if its own taxation was involved notwithstanding the fact that the other State does not, at that time, need such information. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall endeavor to provide information under this Article in the form requested, such as depositions of witnesses and copies of unedited original documents (including books, papers, statements, records, accounts or writings), to the same extent such depositions and documents can be obtained under the laws and administrative practices of that other State with respect to its own taxes.
3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; ou.
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).
4. For the purposes of this Article, the Convention shall apply, notwithstanding the provisions of Article II (Taxes Covered):
(a) to all taxes imposed by a Contracting State; e.
(b) to other taxes to which any other provision of the Convention applies, but only to the extent that the information is relevant for the purposes of the application of that provision.
Article XXVIII.
Diplomatic Agents and Consular Officers.
Nothing in this Convention shall affect the fiscal privileges of diplomatic agents or consular officers under the general rules of international law or under the provisions of special agreements.
Article XXIX.
Miscellaneous Rules.
1. The provisions of this Convention shall not restrict in any manner any exclusion, exemption, deduction, credit or other allowance now or hereafter accorded by the laws of a Contracting State in the determination of the tax imposed by that State.
2. Except as provided in paragraph 3, nothing in the Convention shall be construed as preventing a Contracting State from taxing its residents (as determined under Article IV (Residence)) and, in the case of the United States, its citizens (including a former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax, but only for a period of ten years following such loss) and companies electing to be treated as domestic corporations, as if there were no convention between the United States and Canada with respect to taxes on income and on capital.
3. The provisions of paragraph 2 shall not affect the obligations undertaken by a Contracting State:
(a) under paragraphs 3 and 4 of Article IX (Related Persons), paragraphs 6 and 7 of Article XIII (Gains), paragraphs 1, 3, 4, 5, 6(b) and 7 of Article XVIII (Pensions and Annuities), paragraph 5 of Article XXIX (Miscellaneous Rules), paragraphs 1, 5 and 6 of Article XXIX B (Taxes Imposed by Reason of Death), paragraphs 2, 3, 4 and 7 of Article XXIX B (Taxes Imposed by Reason of Death) as applied to the estates of persons other than former citizens referred to in paragraph 2 of this Article, paragraphs 3 and 5 of Article XXX (Entry into Force), and Articles XIX (Government Service), XXI (Exempt Organizations), XXIV (Elimination of Double Taxation), XXV (Non-Discrimination) and XXVI (Mutual Agreement Procedure);
(b) under Article XX (Students), toward individuals who are neither citizens of, nor have immigrant status in, that State.
4. With respect to taxable years not barred by the statute of limitations ending on or before December 31 of the year before the year in which the Social Security Agreement between Canada and the United States (signed in Ottawa on March 11, 1981) enters into force, income from personal services not subject to tax by the United States under this Convention or the 1942 Convention shall not be considered wages or net earnings from self-employment for purposes of social security taxes imposed under the Internal Revenue Code .
5. Where a person who is a resident of Canada and a shareholder of a United States S corporation requests the competent authority of Canada to do so, the competent authority may agree, subject to terms and conditions satisfactory to such competent authority, to apply the following rules for the purposes of taxation in Canada with respect to the period during which the agreement is effective:
(a) the corporation shall be deemed to be a controlled foreign affiliate of the person;
(b) all the income of the corporation shall be deemed to be foreign accrual property income;
(c) for the purposes of subsection 20(11) of the Income Tax Act , the amount of the corporation's income that is included in the person's income shall be deemed not to be income from a property; e.
(d) each dividend paid to the person on a share of the capital stock of the corporation shall be excluded from the person's income and shall be deducted in computing the adjusted cost base to the person of the share.
6. For purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that:
(a) a measure falls within the scope of the Convention only if:
(i) the measure relates to a tax to which Article XXV (Non-Discrimination) of the Convention applies; ou.
(ii) the measure relates to a tax to which Article XXV (Non-Discrimination) of the Convention does not apply and to which any other provision of the Convention applies, but only to the extent that the measure relates to a matter dealt with in that other provision of the Convention; e.
(b) notwithstanding paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, any doubt as to the interpretation of subparagraph (a) will be resolved under paragraph 3 of Article XXVI (Mutual Agreement Procedure) of the Convention or any other procedure agreed to by both Contracting States.
7. The appropriate authority of a Contracting State may request consultations with the appropriate authority of the other Contracting State to determine whether change to the Convention is appropriate to respond to changes in the law or policy of that other State. Where domestic legislation enacted by a Contracting State unilaterally removes or significantly limits any material benefit otherwise provided by the Convention, the appropriate authorities shall promptly consult for the purpose of considering an appropriate change to the Convention.
Article XXIX A.
Limitation on Benefits.
1. For the purposes of the application of this Convention by the United States,
(a) a qualifying person shall be entitled to all of the benefits of this Convention, and.
(b) except as provided in paragraphs 3, 4 and 6, a person that is not a qualifying person shall not be entitled to any benefits of the Convention.
2. For the purposes of this Article, a qualifying person is a resident of Canada that is:
(a) a natural person;
(b) the Government of Canada or a political subdivision or local authority thereof, or any agency or instrumentality of any such government, subdivision or authority;
(c) a company or trust in whose principal class of shares or units there is substantial and regular trading on a recognized stock exchange;
(d) a company more than 50 per cent of the vote and value of the shares (other than debt substitute shares) of which is owned, directly or indirectly, by five or fewer persons each of which is a company or trust referred to in subparagraph (c), provided that each company or trust in the chain of ownership is a qualifying person or a resident or citizen of the United States;
(e) (i) a company 50 per cent or more of the vote and value of the shares (other than debt substitute shares) of which is not owned, directly or indirectly, by persons other than qualifying persons or residents or citizens of the United States, or.
(ii) a trust 50 per cent or more of the beneficial interest in which is not owned, directly or indirectly, by persons other than qualifying persons or residents or citizens of the United States,
where the amount of the expenses deductible from gross income that are paid or payable by the company or trust, as the case may be, for its preceding fiscal period (or, in the case of its first fiscal period, that period) to persons that are not qualifying persons or residents or citizens of the United States is less than 50 per cent of its gross income for that period;
(g) a not-for-profit organization, provided that more than half of the beneficiaries, members or participants of the organization are qualifying persons or residents or citizens of the United States; ou.
(h) an organization described in paragraph 2 of Article XXI (Exempt Organizations) and established for the purpose of providing benefits primarily to individuals who are qualifying persons, persons who were qualifying persons within the five preceding years, or residents or citizens of the United States.
3. Where a person that is a resident of Canada and is not a qualifying person of Canada, or a person related thereto, is engaged in the active conduct of a trade or business in Canada (other than the business of making or managing investments, unless those activities are carried on with customers in the ordinary course of business by a bank, an insurance company, a registered securities dealer or a deposit-taking financial institution), the benefits of the Convention shall apply to that resident person with respect to income derived from the United States in connection with or incidental to that trade or business, including any such income derived directly or indirectly by that resident person through one or more other persons that are residents of the United States. Income shall be deemed to be derived from the United States in connection with the active conduct of a trade or business in Canada only if that trade or business is substantial in relation to the activity carried on in the United States giving rise to the income in respect of which benefits provided under the Convention by the United States are claimed.
4. A company that is a resident of Canada shall also be entitled to the benefits of Articles X (Dividends), XI (Interest) and XII (Royalties) if.
(a) its shares that represent more than 90 per cent of the aggregate vote and value represented by all of its shares (other than debt substitute shares) are owned, directly or indirectly, by persons each of whom is a qualifying person, a resident or citizen of the United States or a person who.
(i) is a resident of a country with which the United States has a comprehensive income tax convention and is entitled to all of the benefits provided by the United States under that convention;
(ii) would qualify for benefits under paragraphs 2 or 3 if that person were a resident of Canada (and, for the purposes of paragraph 3, if the business it carried on in the country of which it is a resident were carried on by it in Canada); e.
(iii) would be entitled to a rate of United States tax under the convention between that person's country of residence and the United States, in respect of the particular class of income for which benefits are being claimed under this Convention, that is at least as low as the rate applicable under this Convention; e.
(b) the amount of the expenses deductible from gross income that are paid or payable by the company for its preceding fiscal period (or, in the case of its first fiscal period, that period) to persons that are not qualifying persons or residents or citizens of the United States is less than 50 per cent of the gross income of the company for that period.
5. For the purposes of this Article,
(a) the term "recognized stock exchange" means:
(i) the NASDAQ System owned by the National Association of Securities Dealers, Inc. and any stock exchange registered with the Securities and Exchange Commission as a national securities exchange for purposes of the Securities Exchange Act of 1934;
(ii) Canadian stock exchanges that are "prescribed stock exchanges" under the Income Tax Act ; e.
(iii) any other stock exchange agreed upon by the Contracting States in an exchange of notes or by the competent authorities of the Contracting States;
(b) the term "not-for-profit organization" of a Contracting State means an entity created or established in that State and that is, by reason of its not-for-profit status, generally exempt from income taxation in that State, and includes a private foundation, charity, trade union, trade association or similar organization; e.
(c) the term "debt substitute share" means:
(i) a share described in paragraph (e) of the definition "term preferred share" in the Income Tax Act , as it may be amended from time to time without changing the general principle thereof; e.
(ii) such other type of share as may be agreed upon by the competent authorities of the Contracting States.
6. Where a person that is a resident of Canada is not entitled under the preceding provisions of this Article to the benefits provided under the Convention by the United States, the competent authority of the United States shall, upon that person's request, determine on the basis of all factors including the history, structure, ownership and operations of that person whether.
(a) its creation and existence did not have as a principal purpose the obtaining of benefits under the Convention that would not otherwise be available; ou.
(b) it would not be appropriate, having regard to the purpose of this Article, to deny the benefits of the Convention to that person.
The person shall be granted the benefits of the Convention by the United States where the competent authority determines that subparagraph (a) or (b) applies.
7. It is understood that the fact that the preceding provisions of this Article apply only for the purposes of the application of the Convention by the United States shall not be construed as restricting in any manner the right of a Contracting State to deny benefits under the Convention where it can reasonably be concluded that to do otherwise would result in an abuse of the provisions of the Convention.
Article XXIX B.
Taxes Imposed by Reason of Death.
1. Where the property of an individual who is a resident of a Contracting State passes by reason of the individual's death to an organization referred to in paragraph 1 of Article XXI (Exempt Organizations), the tax consequences in a Contracting State arising out of the passing of the property shall apply as if the organization were a resident of that State.
2. In determining the estate tax imposed by the United States, the estate of an individual (other than a citizen of the United States) who was a resident of Canada at the time of the individual's death shall be allowed a unified credit equal to the greater of.
(a) the amount that bears the same ratio to the credit allowed under the law of the United States to the estate of a citizen of the United States as the value of the part of the individual's gross estate that at the time of the individual's death is situated in the United States bears to the value of the individual's entire gross estate wherever situated; e.
(b) the unified credit allowed to the estate of a nonresident not a citizen of the United States under the law of the United States.
The amount of any unified credit otherwise allowable under this paragraph shall be reduced by the amount of any credit previously allowed with respect to any gift made by the individual. The credit otherwise allowable under subparagraph (a) shall be allowed only if all information necessary for the verification and computation of the credit is provided.
3. In determining the estate tax imposed by the United States on an individual's estate with respect to property that passes to the surviving spouse of the individual (within the meaning of the law of the United States) and that would qualify for the estate tax marital deduction under the law of the United States if the surviving spouse were a citizen of the United States and all applicable elections were properly made (in this paragraph and in paragraph 4 referred to as "qualifying property"), a non-refundable credit computed in accordance with the provisions of paragraph 4 shall be allowed in addition to the unified credit allowed to the estate under paragraph 2 or under the law of the United States, provided that.
(a) the individual was at the time of death a citizen of the United States or a resident of either Contracting State;
(b) the surviving spouse was at the time of the individual's death a resident of either Contracting State;
(c) if both the individual and the surviving spouse were residents of the United States at the time of the individual's death, one or both was a citizen of Canada; e.
(d) the executor of the decedent's estate elects the benefits of this paragraph and waives irrevocably the benefits of any estate tax marital deduction that would be allowed under the law of the United States on a United States Federal estate tax return filed for the individual's estate by the date on which a qualified domestic trust election could be made under the law of the United States.
4. The amount of the credit allowed under paragraph 3 shall equal the lesser of.
(a) the unified credit allowed under paragraph 2 or under the law of the United States (determined without regard to any credit allowed previously with respect to any gift made by the individual), and.
(b) the amount of estate tax that would otherwise be imposed by the United States on the transfer of qualifying property.
The amount of estate tax that would otherwise be imposed by the United States on the transfer of qualifying property shall equal the amount by which the estate tax (before allowable credits) that would be imposed by the United States if the qualifying property were included in computing the taxable estate exceeds the estate tax (before allowable credits) that would be so imposed if the qualifying property were not so included. Solely for purposes of determining other credits allowed under the law of the United States, the credit provided under paragraph 3 shall be allowed after such other credits.
5. Where an individual was a resident of the United States immediately before the individual's death, for the purposes of subsection 70(6) of the Income Tax Act , both the individual and the individual's spouse shall be deemed to have been resident in Canada immediately before the individual's death. Where a trust that would be a trust described in subsection 70(6) of that Act, if its trustees that were residents or citizens of the United States or domestic corporations under the law of the United States were residents of Canada, requests the competent authority of Canada to do so, the competent authority may agree, subject to terms and conditions satisfactory to such competent authority, to treat the trust for the purposes of that Act as being resident in Canada for such time as may be stipulated in the agreement.
6. In determining the amount of Canadian tax payable by an individual who immediately before death was a resident of Canada, or by a trust described in subsection 70(6) of the Income Tax Act (or a trust which is treated as being resident in Canada under the provisions of paragraph 5), the amount of any Federal or state estate or inheritance taxes payable in the United States (not exceeding, where the individual was a citizen of the United States or a former citizen referred to in paragraph 2 of Article XXIX (Miscellaneous Rules), the amount of estate and inheritance taxes that would have been payable if the individual were not a citizen or former citizen of the United States) in respect of property situated within the United States shall,
(a) to the extent that such estate or inheritance taxes are imposed upon the individual's death, be allowed as a deduction from the amount of any Canadian tax otherwise payable by the individual for the taxation year in which the individual died on the total of.
(i) any income, profits or gains of the individual arising (within the meaning of paragraph 3 of Article XXIV (Elimination of Double Taxation)) in the United States in that year, and.
(ii) where the value at the time of the individual's death of the individual's entire gross estate wherever situated (determined under the law of the United States) exceeded 1.2 million U. S. dollars or its equivalent in Canadian dollars, any income, profits or gains of the individual for that year from property situated in the United States at that time, and.
(b) to the extent that such estate or inheritance taxes are imposed upon the death of the individual's surviving spouse, be allowed as a deduction from the amount of any Canadian tax otherwise payable by the trust for its taxation year in which that spouse dies on any income, profits or gains of the trust for that year arising (within the meaning of paragraph 3 of Article XXIV (Elimination of Double Taxation)) in the United States or from property situated in the United States at the time of death of the spouse.
For purposes of this paragraph, property shall be treated as situated within the United States if it is so treated for estate tax purposes under the law of the United States as in effect on March 17, 1995, subject to any subsequent changes thereof that the competent authorities of the Contracting States have agreed to apply for the purposes of this paragraph. The deduction allowed under this paragraph shall take into account the deduction for any income tax paid or accrued to the United States that is provided under paragraph 2(a), 4(a) or 5(b) of Article XXIV (Elimination of Double Taxation).
7. In determining the amount of estate tax imposed by the United States on the estate of an individual who was a resident or citizen of the United States at the time of death, or upon the death of a surviving spouse with respect to a qualifed domestic trust created by such an individual or the individual's executor or surviving spouse, a credit shall be allowed against such tax imposed in respect of property situated outside the United States, for the federal and provincial income taxes payable in Canada in respect of such property by reason of the death of the individual or, in the case of a qualified domestic trust, the individual's surviving spouse. Such credit shall be computed in accordance with the following rules:
(a) a credit otherwise allowable under this paragraph shall be allowed regardless of whether the identity of the taxpayer under the law of Canada corresponds to that under the law of the United States;
(b) the amount of a credit allowed under this paragraph shall be computed in accordance with the provisions and subject to the limitations of the law of the United States regarding credit for foreign death taxes (as it may be amended from time to time without changing the general principle hereof), as though the income tax imposed by Canada were a creditable tax under that law;
(c)a credit may be claimed under this paragraph for an amount of federal or provincial income tax payable in Canada only to the extent that no credit or deduction is claimed for such amount in determining any other tax imposed by the United States, other than the estate tax imposed on property in a qualified domestic trust upon the death of the surviving spouse.
8. Provided that the value, at the time of death, of the entire gross estate wherever situated of an individual who was a resident of Canada (other than a citizen of the United States) at the time of death does not exceed 1.2 million U. S dollars or its equivalent in Canadian dollars, the United States may impose its estate tax upon property forming part of the estate of the individual only if any gain derived by the individual from the alienation of such property would have been subject to income taxation by the United States in accordance with Article XIII (Gains).
Article XXX.
Entry Into Force.
1. This Convention shall be subject to ratification in accordance with the applicable procedures of each Contracting State and instruments of ratification shall be exchanged at Ottawa as soon as possible.
2. The Convention shall enter into force upon the exchange of instruments of ratification and, subject to the provisions of paragraph 3, its provisions shall have effect:
(a) for tax withheld at the source on income referred to in Articles X (Dividends), XI (Interest), XII (Royalties) and XVIII (Pensions and Annuities), with respect to amounts paid or credited on or after the first day of the second month next following the date on which the Convention enters into force;
(b) for other taxes, with respect to taxable years beginning on or after the first day of January next following the date on which the Convention enters into force; e.
(c) notwithstanding the provisions of subparagraph (b), for the taxes covered by paragraph 4 of Article XXIX (Miscellaneous Rules) with respect to all taxable years referred to in that paragraph.
3. For the purposes of applying the United States foreign tax credit in relation to taxes paid or accrued to Canada:
(a) notwithstanding the provisions of paragraph 2(a) of Article II (Taxes Covered), the tax on 1971 undistributed income on hand imposed by Part IX of the Income Tax Act of Canada shall be considered to be an income tax for distributions made on or after the first day of January 1972 and before the first day of January 1979 and shall be considered to be imposed upon the recipient of a distribution, in the proportion that the distribution out of undistributed income with respect to which the tax has been paid bears to 85 per cent of such undistributed income;
(b) the principles of paragraph 6 of Article XXIV (Elimination of Double Taxation) shall have effect for taxable years beginning on or after the first day of January 1976; e.
(c) the provisions of paragraph 1 of Article XXIV shall have effect for taxable years beginning on or after the first day of January 1981.
Any claim for refund based on the provisions of this paragraph may be filed on or before June 30 of the calendar year following that in which the Convention enters into force, notwithstanding any rule of domestic law to the contrary.
4. Subject to the provisions of paragraph 5, the 1942 Convention shall cease to have effect for taxes for which this Convention has effect in accordance with the provisions of paragraph 2.
5. Where any greater relief from tax would have been afforded by any provision of the 1942 Convention than under this Convention, any such provision shall continue to have effect for the first taxable year with respect to which the provisions of this Convention have effect under paragraph 2(b).
6. The 1942 Convention shall terminate on the last date on which it has effect in accordance with the preceding provisions of this Article.
7. The Exchange of Notes between the United States and Canada dated August 2 and September 17, 1928, providing for relief from double income taxation on shipping profits, is terminated. Its provisions shall cease to have effect with respect to taxable years beginning on or after the first day of January next following the date on which this Convention enters into force.
8. The provisions of the Convention between the Government of Canada and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on the Estates of Deceased Persons signed at Washington on February 17, 1961 shall continue to have effect with respect to estates of persons deceased prior to the first day of January next following the date on which this Convention enters into force but shall cease to have effect with respect to estates of persons deceased on or after that date. Such Convention shall terminate on the last date on which it has effect in accordance with the preceding sentence.
Article XXXI.
Terminação.
1. This Convention shall remain in force until terminated by a Contracting State.
2. Either Contracting State may terminate the Convention at any time after 5 years from the date on which the Convention enters into force provided that at least 6 months' prior notice of termination has been given through diplomatic channels.
3. Where a Contracting State considers that a significant change introduced in the taxation laws of the other Contracting State should be accommodated by a modification of the Convention, the Contracting States shall consult together with a view to resolving the matter; if the matter cannot be satisfactorily resolved, the first-mentioned State may terminate the Convention in accordance with the procedures set forth in paragraph 2, but without regard to the 5 year limitation provided therein.
4. In the event the Convention is terminated, the Convention shall cease to have effect:
(a) for tax withheld at the source on income referred to in Articles X (Dividends), XI (Interest), XII (Royalties), XVIII (Pensions and Annuities) and paragraph 2 of Article XXII (Other Income), with respect to amounts paid or credited on or after the first day of January next following the expiration of the 6 months' period referred to in paragraph 2; e.
(b) for other taxes, with respect to taxable years beginning on or after the first day of January next following the expiration of the 6 months' period referred to in paragraph 2.

Tributação de Opções de Ações para Funcionários no Canadá.
Allan Madan, CA.
Você recebeu opções de ações do seu empregador canadense? Se sim, é altamente recomendável que você repasse os pontos deste artigo. Neste artigo, explico como as opções "Tributação de Ações de Ações para Funcionários no Canadá" # 8221; afeta diretamente você.
Uma opção de ações para funcionários é um acordo em que o empregador concede a um funcionário o direito de comprar ações da empresa em que ele trabalha normalmente a um preço com desconto especificado pelo empregador. Existem diferentes tipos de opções de ações que podem ser emitidas para os funcionários - mais informações podem ser encontradas no site da Agência de Receitas do Canadá.
Para os empregadores que desejam vender as ações de sua empresa, consulte nosso artigo "Planejando a venda de um negócio".
CCPCs (empresas privadas canadenses controladas) - opções de ações de funcionários.
Um CCPC é uma empresa incorporada no Canadá, cujas ações são de propriedade de residentes do Canadá. Por definição, um CCPC é uma "empresa privada" e, portanto, não é listado em uma bolsa de valores pública como a Bolsa de Nova York ou a Bolsa de Valores de Toronto.
Quando seu empregador concede ou dá uma opção de ações para você, você não precisa incluir nada em seu lucro tributável naquele momento. Em outras palavras, não há nenhuma conseqüência fiscal para você na data da concessão.
Quando você exerce uma opção de compra de ações, o que significa comprar as ações por meio de seu empregador, você deve incluir um benefício tributável em sua receita. O benefício tributável é igual à diferença entre o preço de exercício (ou seja, o preço que você pagou para comprar as ações) e o valor de mercado das ações no momento da compra.
Há um diferimento de imposto especial para funcionários de CCPCs. O benefício tributável pode ser adiado para a data em que as ações são vendidas. Isso torna mais fácil para os funcionários pagar impostos porque eles terão dinheiro disponível com a venda das ações.
Opções de ações do empregado CCPC.
Vamos ver um exemplo. Suponha que o preço de exercício seja de US $ 3 / ação e o valor de mercado seja de US $ 10 / ação. Quando você exerce o seu direito de comprar as ações, um benefício tributável é realizado por US $ 7 / ação (US $ 10 menos US $ 3). Lembre-se, para os funcionários da CCPC, o benefício tributável é adiado até que as ações sejam vendidas.
Se você atender a uma dessas duas condições, poderá reivindicar uma dedução de imposto igual a ½ do benefício tributável, ou US $ 3,50 neste exemplo (50% x US $ 7).
Você manteve as ações por pelo menos dois anos depois de comprá-las. O preço de exercício é pelo menos igual ao valor justo de mercado das ações quando elas lhe foram concedidas. Implicações fiscais para opções de ações de funcionários CCPC.
Empresas Públicas - Opções de Ações para Funcionários.
Agora, vamos passar para a tributação de opções de ações para empresas públicas.
Na data em que você recebe ou recebe opções de ações em um empregador que seja uma empresa de capital aberto, você não tem uma consequência tributária pessoal. Entretanto, na data em que você comprar as ações, você receberá um benefício tributável igual à diferença entre o preço de exercício das ações e o valor de mercado das ações naquela data. Você não pode adiar o tempo desse benefício tributável.
Suponhamos que você trabalhe para a Coca-Cola Canadá e o valor justo de mercado das ações hoje seja de US $ 30 / ação. De acordo com o contrato de opção, você pode exercer ou comprar as ações por US $ 10 / ação. Portanto, o benefício tributável que será incluído na sua renda no momento do exercício é de US $ 20 / ação.
Depois de comprar as ações, você tem duas opções: (A) Você pode vender imediatamente as ações ou (B) Você pode segurá-las se você acredita que elas aumentarão em valor no futuro. Se você optar por manter as ações e vendê-las no futuro com lucro, o lucro obtido com a venda será classificado como ganho de capital e sujeito a imposto. Independentemente de você vender as ações ou mantê-las, os impostos serão deduzidos do seu salário para contabilizar o benefício tributável que você percebeu na compra das ações.
Árvore de decisão para opções de ações de funcionários para empresas públicas.
No entanto, não segure os compartilhamentos por muito tempo depois de comprá-los. Isso ocorre porque, se o preço do estoque cair, você ainda será responsável pelo benefício tributável realizado na data da compra.
Você pode reivindicar uma dedução fiscal para ½ do benefício tributável realizado na data do exercício. Para fazer isso, todas essas três condições devem ser atendidas:
Você recebe ações ordinárias normais mediante exercício O preço de exercício é pelo menos igual ao valor justo de mercado das ações no momento em que as opções foram concedidas Você negocia de maneira direta ou de terceiros com seu empregador.
Aviso Legal.
As informações fornecidas nesta página destinam-se a fornecer informações gerais. A informação não leva em conta sua situação pessoal e não se destina a ser usada sem consulta de profissionais contábeis e financeiros. Allan Madan e Madan Chartered Accountant não serão responsabilizados por quaisquer problemas que possam surgir do uso das informações fornecidas nesta página.
SOBRE O AUTOR.
ALLAN MADAN
Allan Madan é um CPA, CA e fundador da Madan Chartered Accountant Professional Corporation. A Allan fornece valiosos serviços de planejamento tributário, contabilidade e preparação de imposto de renda na área da Grande Toronto.

Fifth Protocol – Canada-U. S. Tax Treaty – Stock Options.
Volume No. 07-12.
“The revised Protocol provides a mechanism for allocating stock option income between the countries.”
In annex B of the fifth Protocol (the “Protocol”) to the Canada-U. S. Treaty, there is an agreement between Canada and U. S. on how to tax employment income from stock options. In the past, there was an inconsistency between the two countries which sometimes resulted in double taxation. In order to alleviate this issue, the two countries have agreed to tax the employment income on an agreed upon ratio. The ratio is based on the number of days in which an individual was employed at the place of employment to the number of days employed between the date of grant and the date of exercise. Assume the following facts:
An individual was granted a stock option on the first day of his employment in Canada. The individual worked for 300 days in Canada before moving to the United States. The individual exercised the options 400 days after moving to the United States.
In a case like that, 300 over 700 of the employment income will be allocated to Canada and the remainder allocated to the United States.
Notwithstanding the above, the competent authorities of both countries can agree to attribute the income in a different manner if both countries agree that the terms of the option were such that the grant was essentially a transfer of ownership. For example, if the options were granted “in the money” or not subject to a substantial vesting period, then the competent authority can reallocate the employment income.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
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Mudança de posição na alocação de benefícios de opções de ações transnacionais.
Data de lançamento: 22 de fevereiro de 2013.
Convidado: Chantal McCalla.
Duração: 7:30 minutos.
Através de entrevistas com proeminentes profissionais da área tributária da PwC, a Tax Tracks é uma série de podcasts de áudio projetada para apresentar comentários sucintos sobre questões técnicas, políticas e administrativas de impostos que fornecem informações ocupadas aos diretores fiscais que elas necessitam.
Mudança de posição na alocação de benefícios de opções de ações transnacionais.
Ouça o podcast completo.
Mudança de posição na alocação de benefícios de opções de ações transnacionais.
Você está ouvindo outro episódio de Tax Tracks da PwC em pwc / ca / ​​taxtracks. Esta série analisa as questões técnicas e administrativas mais urgentes que afetam os diretores fiscais mais ocupados da atualidade.
Sharon: Olá, aqui é Sharon Mitchell, da PwC Canada, e este é um podcast sobre as recentes mudanças na alocação de receita de ações aceitas pela Agência Canadense de Renda. Com a gente hoje é Chantal McCalla, gerente sênior em nosso escritório em Toronto. Ela é especializada nos desafios de recursos humanos enfrentados por cessionários internacionais de entrada e saída.
Chantal: Obrigado Sharon - é bom estar aqui.
Sharon: Chantal, você pode nos dar uma introdução de alto nível das mudanças do outono de 2012 relacionadas à alocação de opções de ações?
Chantal: Claro Sharon, o que aconteceu é que a Agência Canadense de Receitas (CRA) confirmou recentemente que aplicará os princípios estabelecidos no Comentário sobre o Artigo 15 da Convenção Fiscal Modelo da OCDE sobre renda e capital, ao alocar um benefício de opção de compra de ações. para o Canadá. Ou seja, a menos que um tratado de imposto de renda se aplique especificamente. Esta convenção modelo da OCDE fornece orientação aos países para ajudar a resolver questões envolvendo dupla tributação internacional e constitui um ponto de partida para negociações de tratados tributários entre países. Esta alteração aplica-se a exercícios de opção de ações após 2012.
Sharon: Chantal, qual foi a alocação anteriormente aceita antes dessa mudança?
Chantal: Bem, a visão de longo prazo do CRA foi alocar o benefício aos serviços prestados no ano da concessão, a menos que haja evidências convincentes para sugerir que algum outro período é mais apropriado. Em contraste, a partir de 2005, a orientação da OCDE informou que a chave é determinar o valor do benefício derivado do emprego exercido no país de origem, considerando todos os fatos e circunstâncias relevantes. Em muitos casos de países, esse seria o período de concessão para a aquisição das opções.
Sharon: Entendo, então, historicamente, havia alguma desvantagem em terceirizar a opção de compra de ações para os serviços prestados no ano de concessão versus os países aplicáveis ​​onde os serviços eram realizados em diferentes períodos, como concessão para exercício ou aquisição de direitos?
Chantal: Sim, exatamente Sharon certamente poderia ser, você vê que a posição padrão da CRA pode levar a uma dupla tributação quando não há alívio de crédito fiscal estrangeiro ou outro alívio disponível sob um tratado de imposto de renda dependendo das outras jurisdições estrangeiras envolvidas e seu próprio ponto de vista abastecimento.
Sharon: Então presumo que a mudança alivia o risco de dupla tributação. Você pode nos contar um pouco sobre como aplicar essas mudanças?
Chantal: Claro. Para o seu primeiro ponto, você está correto. Essa mudança ajuda a reduzir a ambiguidade em torno do fornecimento de opções de ações e, como você mencionou, alivia o risco de dupla tributação. Ele traz a posição padrão do Canadá de acordo com o modelo de diretrizes da convenção da OCDE e, portanto, com as abordagens de muitos países em todo o mundo.
Para ser específico, o CRA resumiu os princípios da OCDE da seguinte forma:
A determinação do valor de um benefício de opção de compra de ações que é derivado do emprego exercido em um país de origem deve levar em consideração todos os fatos e circunstâncias relevantes, incluindo os contratos subjacentes. Em particular, um benefício de opção de compra de ações é distribuído para cada país de origem com base no número de dias de emprego exercidos naquele país sobre o número total de dias no período durante o qual os serviços de emprego dos quais o benefício de opção de ações é exercido são exercidos.
Geralmente, presume-se que um benefício de stock option se relaciona com o período de emprego que é requerido como uma condição para o empregado adquirir o direito de exercer a opção, isto é, o "período de aquisição". e um benefício de opção de ações é geralmente assumido como não relacionado a serviços passados, a menos que haja evidência indicando que serviços passados ​​são relevantes nas circunstâncias particulares.
Nesta base, o resultado é uma melhor correspondência dos créditos fiscais estrangeiros para opções de ações transfronteiriças.
Sharon: Ok, eu acho que entendo, você pode nos dar um exemplo de como esses princípios mudaram as alocações de opções de ações.
Chantal: Claro, digamos que eu tenha um residente canadense para fins fiscais, que tenha uma opção de compra de ações enquanto morador do Canadá e que o indivíduo vá para os EUA e depois dos EUA para a América do Sul nos anos subsequentes, mas continue sendo residente do Canadá durante todo este período de tempo. Como um residente permanente do Canadá, este indivíduo é tributado em 100% do benefício da opção de ações. Nesse caso, o indivíduo tem uma opção de ações cujo período de concessão para vest abrange o período de atribuição. Esse indivíduo pode estar sujeito a impostos nos EUA e na América do Sul no exercício da opção de compra de ações. Na ausência de evidência em contrário, o Canadá teria adquirido previamente a opção de compra de ações para os serviços prestados no ano da concessão, neste caso o Canadá, não deixando nenhuma capacidade de reivindicar o crédito de imposto estrangeiro sobre o retorno canadense para o potencial dos EUA. Impostos sul-americanos pagos. Com a nova orientação em vigor, esse indivíduo pode agora obter o benefício da opção de compra de ações sobre o serviço de emprego de três países e reivindicar o crédito de imposto estrangeiro sobre o retorno canadense para os impostos americanos e sul-americanos pagos.
Sharon: Obrigado por essa explicação detalhada Chantal. Há alguma possível exceção a essa nova orientação?
Chantal: Ótima pergunta Sharon. Como afirma o Modelo da Convenção da OCDE, pode haver circunstâncias em que um período de alocação diferente do da concessão ao colete seja apropriado, como serviços passados, mas o contrato de opção precisaria estipular isso claramente. A CRA também observa que, quando os termos da opção indicam que a concessão é tratada como uma transferência de propriedade de títulos, a CRA pode atribuir o benefício de acordo (ou seja, fornecido para o local no momento da concessão). As circunstâncias observadas como indicativas de uma transferência de propriedade incluem onde as opções estavam dentro do dinheiro ou onde elas não estão sujeitas a um período de aquisição substancial.
Sharon: Então, Chantal, no final, qual é o resultado final?
Chantal: No final, Sharon, este último anúncio permite ao empregador e ao executivo internacionalmente móvel maior certeza quanto à alocação adequada de seus benefícios de opções de ações transnacionais para fins fiscais canadenses e ajuda a aliviar o potencial de dupla tributação, como Ele traz a abordagem do Canadá de acordo com a visão predominante de muitos países ao redor do mundo.
Sharon: Obrigado Chantal por esta discussão informativa sobre as recentes mudanças nas alocações de opções de ações no Canadá.
Chantal: meu prazer Sharon.
Sharon: Se você tiver alguma dúvida relacionada a este tópico, os detalhes de contato de Chantal podem ser encontrados em nosso site de podcast do PwC, pwc / ca / ​​taxtracks.
As informações contidas neste podcast são fornecidas com o entendimento de que os autores e editores não estão envolvidos na prestação de consultoria ou serviços jurídicos, contábeis, tributários ou outros profissionais. O público deve discutir com consultores profissionais como a informação pode se aplicar à sua situação específica.
Copyright 2013 PricewaterhouseCoopers LLP. Todos os direitos reservados. A PricewaterhouseCoopers se refere à PricewaterhouseCoopers LLP, uma sociedade de responsabilidade limitada de Ontário, ou, conforme o contexto exigir, à rede global da PricewaterhouseCoopers ou a outras firmas-membro da rede, cada uma das quais é uma entidade legal separada e independente. Para detalhes completos sobre direitos autorais, por favor visite nosso website em pwc / ca.

Us canada tax treaty stock options

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The Fifth Protocol to the Canada-United States Income Tax Convention.
Pontos chave.
Tax treaties prevent double taxation, aid tax enforcement and enhance co-operation. Within Canada's network of over 85 tax treaties, the Canada-United States Income Tax Convention is especially important. The Convention was signed in 1980. This is the fifth set of changes ("protocols") since then. The Fifth Protocol delivers significant benefits to Canadian individuals and businesses, by: eliminating source-country "withholding" tax on cross-border interest payments; allowing taxpayers to require that otherwise insoluble double tax issues be settled through arbitration ensuring that there is no double taxation of emigrants' gains; extending treaty benefits to "limited liability companies"; giving mutual tax recognition of pension contributions; clarifying how stock options are taxed; and implementing many technical improvements and updates. To become part of Canada's law, the Fifth Protocol has to be enacted by Parliament. The Government plans to introduce the required legislation at an early opportunity.
Important Note: This Backgrounder is a general, plain-language guide to rules, documents and practices that are inherently complex. While every effort has been made to ensure accuracy, this guide is neither a complete technical description nor an official interpretation of the subjects it discusses. The examples provided are simplified cases that are not intended to depict actual persons or transactions.
Tax treaties.
Whenever a resident of one country earns income in another country - whether by carrying on business, making an investment or being employed there - there is potential for double taxation. This is because both the person's country of residence and the country where the income is earned can legitimately assert rights to tax the same income.
To prevent this double taxation, countries sign bilateral tax treaties (also known as tax conventions or double taxation agreements (DTAs)). These agreements, which become legally binding once ratified, set out which country gets to tax particular forms of income in a variety of specific situations. Tax treaties also help in the enforcement of the tax law, by providing for exchanges of information between tax authorities. And the treaties include mechanisms for resolvingdifferences of view between countries on questions like the characterization of a particular item of income or where it was earned.
With a dynamic economy and a mobile population, tax treaties are increasingly important for Canada. Those who benefit from this country's tax treaties include established businesses that operate or invest abroad, new ventures that seek foreign investment, and individuals who may want to work temporarily in another country or own property there. A tax treaty gives all of these people dependable answers as to where they have to pay tax.
Canada's tax treaty network is extensive: we have DTAs with over 85 countries, including our NAFTA partners, virtually all of the European Union and OECD (Organization for Economic Co-operation and Development) countries, many members of the Commonwealth and La Francophonie, and rapidly growing countries such as Brazil, Russia, India, China and South Africa.
Canada-United States Income Tax Convention.
The Canada-United States tax treaty is, given the depth of Canada's ties with the United States, particularly important. Like all of Canada's DTAs, the Canada-U. S. treaty is based on a model developed by the OECD, but it has always included some special features that reflect the unue Canada-U. S. relationship. As cross-border business and investment practices evolve, the tax treaty has to change as well if it is to remain effective.
The current Canada-U. S. Income Tax Convention was first signed in 1980. It has been updated four times - in 1983, 1984, 1995 and 1997. These four "Protocols" (sets of changes to the treaty) covered a wide spectrum of points, but they all helped to ensure the treaty adopted the latest developments in the two countries' tax policies as well as the changing needs of Canadian and U. S. individuals and businesses.
Canada's 2007 Budget noted that agreement in principle had been reached with the U. S. on a fifth Protocol to update the tax treaty.
The Fifth Protocol.
The Protocol signed on September 21, 2007 proposes to change and update many of the provisions of the existing Canada-U. S. Income Tax Convention. This fifth Protocol will enter into force once it is made law ("ratified") by both the Canadian and United States governments (or on January 1, 2008, if it is ratified in 2007). The Protocol is accompanied by two exchanges of diplomatic notes which set out many of the more technical aspects.
Below are brief explanations of several key elements of the Protocol:
Elimination of "withholding tax" on interest.
Who it affects: Any resident of Canada or the United States who pays interest to a person in the other country.
Current rule: If interest is paid across the Canada-U. S. border, the tax treaty generally allows the payer's home country (the "source country") to tax that interest. The tax, at up to a 10% tax rate, is collected by requiring the payer to withhold and remit a portion of the interest payment - hence the term "withholding tax".
New rule: The source country cannot tax cross-border interest.
Example: A resident of Canada who borrows money from a U. S. lender will no longer have to withhold and remit Canadian tax on the interest payments.
Significance: Reduces borrowing costs; makes cross-border investment more efficient.
Application: Applies to interest paid between unrelated (arm's length) persons - e. g. a bank and its customer - as of the second month after the Protocol enters into force. For interest paid between related persons - e. g. a subsidiary company and its parent company - full exemption applies as of the third year after entry into force. (For the first and second years after entry into force, the source country tax rate limit is reduced from 10% to 7% and 4%, respectively.)
Who it affects: Residents of Canada or the United States who face potential double taxation that is not resolved through the treaty's rules or by negotiation between the two revenue authorities.
Current rule: In addition to its many specific provisions, the tax treaty has a general backstop rule that allows the revenue authorities to agree in cases where the treaty does not resolve an issue between them. (A voluntary arbitration procedure - one in which the two countries must themselves agree with the taxpayer to send the matter to an arbitration board - is authorized under the current treaty, but has not been implemented.) If the revenue authorities do not resolve the dispute between them, there is no further mechanism to resolve the dispute. This means that taxpayers cannot be assured that their double taxation problems will be resolved.
New rule: In the most important kinds of issue that require agreement by the revenue authorities, taxpayers can compel the authorities to refer their dispute to binding arbitration. Note that this procedure is entirely elective for the taxpayer: the new rule is described as "mandatory arbitration" because it is mandatory for the revenue authorities.
Example: A U. S. company sells goods to its Canadian parent company for a certain price. The U. S. company is subjected to a U. S. transfer pricing audit that determines a higher price should apply to the goods, and assesses more income in the hands of the subsidiary. However, Canadian authorities do not agree with the higher transfer price and decline to increase the Canadian company's cost of the goods. The two tax authorities cannot reach agreement. The companies can, subject to certain conditions, choose to require the tax authorities to put the matter to binding arbitration. Details of the arbitration process are set out in an exchange of diplomatic notes.
Significance: Increases taxpayers' confidence that the tax treaty will resolve potential double taxation.
Application: Applies to cases that are, when the Protocol enters into force, already under consideration under the treaty's mutual agreement procedure, as well as cases that subsequently come under consideration.
Taxpayer migration - protection against double taxation.
Who it affects: Individuals who cease to be resident in one country and become resident in the other.
Current rule: The tax treaty allows each country to tax its residents on all of their capital gains. No provision is made for the possibility that a country may tax emigrants on any pre-departure gain (as Canada does, by treating them as having disposed of most kinds of property for fair market value proceeds).
New rule: If, on ceasing to be resident of one country and becoming resident of the other, an individual is treated by the first country as having disposed of a property, the individual can choose to be treated also in the second country (the new home country) as having disposed of and reacquired the property at the time of changing residence.
Example: An emigrant from Canada to the U. S. owns shares that cost $100 and are worth $1,000. Canada treats the emigrant as having sold the shares for $1,000, realizing a $900 capital gain ($450 taxable capital gain). The emigrant can choose to be treated for U. S. tax purposes as having realized that $900 gain before becoming resident in the U. S. The U. S. may tax any future gain over the $1,000 value of the shares, but will not tax any of the gain that accrued while the individual was resident in Canada.
Significance: Prevents double taxation of pre-migration gains.
Application: Applies to dispositions (i. e. emigrations) that took place after September 17, 2000 (the date on which the U. S. Treasury and Canada's Department of Finance announced agreement on this issue).
"Limited liability companies" (LLCs) and other hybrid entities.
Who it affects: Entities that are treated as corporations under the law of one country, but are treated as partnerships (or "pass-through vehicles") in the other country.
Current rule: No specific accommodation of these hybrid entities. To benefit from the tax treaty (reduced withholding taxes, etc.), an entity must be resident in (i. e. taxable in) one of the treaty countries. If an entity is a pass-through vehicle in its home country, it is not taxable there; instead, its investors are taxed directly as it earns income. But if the other country sees the entity as a corporation, that other country will apply the residence test (taxability) to the entity itself, and the entity will fail.
New rule: Income that the residents of one country earn through a hybrid entity will in certain cases be treated by the other country (the source country) as having been earned by a resident of the residence country. On the other hand, a corollary rule provides that if a hybrid entity's income is not taxed directly in the hands of its investors, it will be treated as not having been earned by a resident.
Example: U. S. investors use an LLC to invest in Canada. The LLC - which Canada views as a corporation but is a flow-through vehicle in the U. S. - earns Canadian-source investment income. Provided the U. S. investors are taxed in the U. S. on the income in the same way as they would be if they had earned it directly, Canada will treat the income as having been paid to a U. S. resident. The reduced withholding tax rates provided in the tax treaty will apply.
Significance: Removes a potential impediment to cross-border investment. Reduces incidence of "double non-taxation" through better matching of tax rules in the two countries.
Application: Basic rule applies for withholding tax purposes as of the second month after the Protocol enters into force. Corollary rule applies after two years.
Pensions & other registered plans - mutual recognition.
Who it affects: Cross-border commuters - individuals residing in one country and working in the other - who contribute to a pension plan (or any of certain other employment-related retirement arrangements) in the country where they work. Also individuals who move from one country to the other on short-term (up to five years) work assignments, and continue to contribute to a plan or arrangement in the first country. In certain cases, such persons' employers may also benefit.
Current rule: No rule in respect of contributions, meaning no assurance that they may be deducted for tax purposes in the country of employment.
New rule: Provided certain conditions are met, cross-border commuters may deduct, for residence country tax purposes, the contributions they make to a plan or arrangement in the country where they work. Similarly, those who move for work and meet certain conditions can deduct, for source country tax purposes, their contributions to a plan or arrangement in the other country, for up to five years. In both cases, accruing benefits are not taxable.
Examples: (1) A resident of Canada is employed in the U. S., and contributes to an employer-sponsored pension plan there. The employee's contributions to the plan (up to the employee's remaining RRSP deduction room) will be deductible for Canadian tax purposes. (2) An employee of a Canadian company is assigned for three years to a related U. S. company. The employee keeps contributing to the employee pension plan of the Canadian company. For U. S. tax purposes, both the employee and the U. S. company will be able to deduct the contributions.
Significance: Facilitates movement of personnel between the two countries by removing a possible disincentive for commuters and temporary work assignments.
Application: Applies for taxation years that begin after calendar year in which the Protocol enters into force. However, if ratification is completed in 2007 the rule applies for taxation years that begin in 2008 (i. e. the same calendar year that the Protocol enters into force).
Stock options - apportionment of taxing rights.
Who it affects: Employees who are granted employee stock options while employed in one country, and who then work for the same or a related employer in the other country before exercising or disposing of the option (or disposing of the share).
Current rule: No specific rule provides for the apportionment between the two countries of a stock option benefit in such cases.
New rule: The income in question (the stock option benefit) will generally be considered to have been derived in a country to the extent that the individual's principal place of employment was in that country during the time between the granting of the option and its exercise (or the disposition of the share).
Example: An employee of a United States company is granted a stock option on January 1, 2009. On January 1, 2010, the employee is moved from the company's U. S. head office to its Canadian subsidiary. On December 31, 2011, the employee disposes of the option, giving rise to an income inclusion. Unless the revenue authorities agree that the circumstances warrant departing from the usual rule, one third of the income will be treated as having arisen in the U. S., and two thirds in Canada.
Significance: Gives clarity as to the "sourcing" of stock option benefits; adds certainty that double taxation will not arise.
Application: As a set of detailed, technical rules, this is included in an exchange of diplomatic notes, rather than in the Protocol itself. Enters into force on the same date as does the Protocol.
Próximos passos.
To take effect, the Protocol must be ratified according to the applicable procedures in both Canada and the United States. For Canada, this means making the Protocol a part of Canadian law, by enacting a statute to that effect. The Protocol will thus be presented to Parliament in a Bill, which - as with any other Bill - both the House of Commons and the Senate must approve and which must obtain Royal Assent.
The Government of Canada intends to proceed with the required Bill at an early opportunity.
For Additional Information.
The existing Canada-United States Income Tax Convention is available on the Department of Finance website, at fin. gc. ca/treaties/USA_e. html.
Many public libraries in Canada hold, often in their reference collection, one or more commercial editions of the Income Tax Act that also include the Convention and related materials.
Information on pending legislation, including tax treaty Bills, is available through the Parliament of Canada website, at.