Canada Welcomes New US Tax Treaty Protocol

by Mike Godfrey, Tax-News.com, Washington

19 December 2008

Canada's global competitiveness will be aided by the entry into force of an important new protocol to the country's double taxation avoidance agreement with the United States, according to Minister of Finance Jim Flaherty.

"The entry into force of this updated treaty with our largest trading partner will benefit individuals and businesses on both sides of the border, including manufacturers," said Flaherty.

"The increased trade and investment that it will induce is particularly timely given uncertain global economic conditions," he added.

The treaty was first signed on September 26, 1980, and has been updated on four previous occasions – June 14, 1983, March 28, 1984, March 17, 1995 and July 29, 1997.

The updated fifth protocol was signed by Flaherty and United States Treasury Secretary Hank Paulson on September 21, 2007, and entered into force on December 15, 2008.

Key measures of the updated treaty include:

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

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