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Unformatted text preview: usco for the purpose of acquiring Canco, a large Canadian manufacturing company. The sole business activity of usco (other than holding the shares of Canco) is the operation of a small retailing outlet that sells products manufactured by Canco. Does usco meet the substantiality test for the purposes of article xxix a(3) in respect of the dividends it receives from Canco? although there is arguably a business connection between the us and the Canadian business, it is unlikely that usco meets the substantiality test.
under certain us treaties, a safe-harbour rule is provided in addition to the general substantiality test. Consider article 26(4)(b) of the us-Netherlands treaty, for example. Here the substantiality test for the trade or business of the income recipient is deemed to be met when, in the preceding taxation year, the average of the ratios for the three factors listed below exceeds 10 percent, and each of these ratios separately exceeds 7.5 percent: 1. the ratio of the value of assets used or held for use in the active conduct of the trade or...
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