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Unformatted text preview: ver. ** Of PricewaterhouseCoopers LLP, Toronto. 86 87
108 i nternational tax planning
Capital Gains: Canadian Subsidiaries Held by US-Resident Companies
Active Trade or Business Test: Application to Capital Gains
General Anti-Abuse Provision
Appendix n 87
The fifth protocol to the Canada-us tax treaty1 replaces article xxix a, the limitationon-benefits (LOb) article that was negotiated in 1995 in the third protocol,2 with a new LOb article.3 Previously, the LOb article was one-sided in the sense that it applied only to Canadian residents who sought treaty benefits from the united states. No other us treaty contained a one-sided LOb article.
The introduction of a comprehensive bilateral LOb article into a tax treaty represents a significant change in policy for Canada. Canada reversed its position in the protocol in lieu of relying on the less restrictive anti-treaty-shopping rules that were previously applicable under Canadian tax law. This change is likely the result of Canada’s inability to pr...
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