Canada: Fifth Protocol To Canada - U.S. Tax Treaty Enters Into Force

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Tax, December 2008

On December 15, 2008, the Fifth Protocol to the tax treaty between Canada and the United States entered into force.

The Protocol makes many important changes, including:

• a phased-in exemption from withholding tax on related party interest

• an exemption from withholding tax on guarantee fees

• new rules extending treaty benefits to U.S. limited liability companies in certain cases

• new "anti-hybrid" rules that deny treaty benefits to certain payments from hybrid entities

• Canada's first comprehensive "limitation on benefits" rules

• a binding arbitration procedure for competent authority cases, and

• a new "service permanent establishment" rule.

Details of these changes are discussed in previously issued Blakes Bulletins:

• September 2007 Blakes Bulletin on Tax - Protocol Amending Canada–U.S. Tax Treaty and

• July 2008 Blakes Bulletin on Tax - Technical Explanation to the Fifth Protocol.

We have also prepared a one-page table of effective dates for entry into force of the provisions of the Protocol – click here to view.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.