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in-print-bilateral-benefits-0409-en

in-print-bilateral-benefits-0409-en - Navigating the New...

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Navigating the New Bilateral Limitation-on-Benefits Rule by Kara Ann Selby PricewaterhouseCoopers LLP This In Print provides a general explanation of the limitation-on-benefits article, examines select practical problems in its application, highlights areas in which additional guidance is required and identifies possible issues and anomalies taxpayers may encounter in applying these new rules. As well, decision- making flowcharts illustrate the eligibility of persons claiming treaty benefits under the Canada-U.S. Tax Treaty. Kara Ann Selby [email protected] Originally published by: Canadian Tax Journal (2009) Vol. 57, No. 1, pp. 86 – 118 Reproduced with permission of Canadian Tax Foundation . Copyright remains with author. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, Canada, an Ontario limited liability partnership. PricewaterhouseCoopers LLP, Canada, is a member firm of PricewaterhouseCoopers International Limited. Published in Canadian Tax Journal
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canadian tax journal / revue fiscale canadienne (2009) vol. 57 , n o 1, 86 - 118 86 International Tax Planning Co-editors: Lincoln Schreiner * and Michael Maikawa ** NavIgaTINg The New BIlaTeral lImITaTIoN-oN-BeNefITs rule Kara Ann Selby ** In this paper, the author provides a general explanation of the limitation-on-benefits article, examines selected practical problems in its application, highlights areas in which additional guidance is required, identifies potential problems and anomalies that taxpayers may encounter in applying the new rules, and makes certain recommendations. Keywords: TreaTy n TreaTy shopping n wiThholding Taxes n capiTal gains n benefiTs n residence * Of PricewaterhouseCoopers LLP, Vancouver. ** Of PricewaterhouseCoopers LLP, Toronto. C o N T e N T s Introduction 87 The New Bilateral Article XXIX A 88 Implications for Canadian Taxpayers 89 Qualifying Person Tests 91 Article XXIX A (2)(c): Public Company Exemption 92 Article XXIX A (2)(d): Subsidiary of a Public Company Test 93 Article XXIX A (2)(e): Ownership Test 94 Article XXIX A (2)(e): Base-Erosion Test 95 Example 1: Takeover of US Company by Canadian Public Company 96 Active Trade or Business Test 97 Trade or Business 98 In Connection with or Incidental to 98 In Connection with 99 Incidental to 103 Substantial 103 Example 2: Substantiality of a US Company 104 Example 3: Interest Payments from Canadian Company to US Operating Company 105 Derivative Benefits Test 106 Example 4: Interest Payments from Canadian Company to US Operating Company 108
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international tax planning n 87 INTroduCTIoN The fifth protocol to the Canada- US tax treaty 1 replaces article XXIX A , the limitation- on-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 ap- plied only to Canadian residents who sought treaty benefits from the United States.
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