in-print-bilateral-benefits-0409-en

Thederivativebenefitstestprovides

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Unformatted text preview: s under the treaty has a sufficient connection with Canada or the united states to justify the benefits claimed. Thus, the LOb article limits the ability of third-country residents to engage in treaty shopping by establishing legal entities in either Canada or the united states to obtain the benefits of the treaty. The article sets out a number of objective tests that are largely mechanical in nature. a resident of Canada or the united states that satisfies any of these tests is generally entitled to all of the benefits of the treaty, regardless of whether the resident was formed for the purpose of tax avoidance.10 The tests include: a qualifying person test,11 n an active trade or business test,12 and n a derivative benefits test.13 n The qualifying person test contains certain ownership tests and a base-erosion test. The active trade or business test determines the nature of a person’s activity and its economic connection to this activity. The derivative benefits test provides limited treaty relief in respect of dividends, interest, and royalties, provided that the tax on these payments made by a resident of one contracting state to a resident of the other contracting state is “at least as low as” the tax that would have been payable had the paym...
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This note was uploaded on 11/03/2013 for the course ACCOUNTING 346 taught by Professor William during the Fall '12 term at DeVry Chicago.

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