While it is not customary for Canada to issue such an explanation, Canada was given an opportunity to review and comment on the US document.

Flaherty indicated on 10th July that Canada agrees that the Technical Explanation accurately reflects understandings reached in the course of negotiations with respect to the interpretation and application of the various provisions in the Protocol.

Canada ratified the Protocol on 14th December, 2007, when Bill S-2 received Royal Assent.

The agreement to modify the Convention was signed on 21st September, 2007, in Quebec by Flaherty and Henry Paulson, US Secretary of the Treasury. First signed in 1980, the Convention has been updated four times in the past through agreements known as Protocols.

The Fifth Protocol contains important changes regarding withholding taxes and tax treaty benefits. These include:

• Eliminating withholding taxes on cross-border interest payments;
• Extending treaty benefits to limited liability companies;
• Allowing taxpayers to require that certain key double taxation issues, such as transfer pricing, be settled through arbitration;
• Ensuring that there is no double taxation on emigrants’ gains;
• Giving mutual tax recognition of pension contributions; and
• Clarifying how stock options are taxed.