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Unformatted text preview: iness in Canada or the united states, a substantiality requirement must also be met to qualify for treaty benefits. This requirement is intended to prevent treaty-shopping abuses that occur when companies attempt to qualify for benefits by engaging in insignificant connected business activities—that is, activities that have little economic cost or effect with respect to the business as a whole.
The technical explanation states that a trade or business in a residence country need not be as large as the income-producing activity in a source country to meet 42 supra note 7. 43 86 DTC 6521, at 6525 (sCC). 104 n c anadian tax journal / revue fiscale canadienne ( 2009) vol. 5 7 , n o 1 the substantiality requirement. However, in terms of income, assets, or other similar measures, the trade or business in the residence country cannot represent only a very small percentage of the activity in the source country. ex ample 2: substantialit y of a us Company
suppose that a third-country resident establishes...
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