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Canada-United Kingdom

22 July 2014

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Protocol to the Tax Treaty between Canada and the U.K. Signed

On 21 July 2014, Canada and the U.K. signed a protocol to the 1978 income and capital tax treaty between the two countries. The protocol is the fourth to amend the treaty, and includes multiple amendments. Main changes are as follows.

OECD Model Standards

Several articles were amended to be brought in line with OECD model standards, including:

  • Article 7 Business Profits
  • Article 23 Mutual Agreement Procedures (with an added arbitration provision)
  • Article 24 Exchange of Information
  • Article 24A Assistance in the Collection of Taxes (an addition)

Dividends

A provision is added that dividends payment will be exempt from withholding tax when paid to an organization that is established and operates in the other State, and the organization exclusively administers or provides benefits under one or more recognized pension plans. In order to obtain the benefit, the following conditions must be met:

  • The organization must be the beneficial owner of the shares on which the dividends are paid, holds those shares as an investment, and is generally exempt from tax in the other State;
  • The organization cannot own directly or indirectly more than 10% of the capital or voting power of the company paying the dividends; and
  • Each recognized pension plan must provide benefits primarily to individuals who are resident of the other State

Interest

A provision is added that interest payments will be exempt from withholding tax if the beneficial owner and the payer are dealing at arm's length.

Entry into Force and Effect

The protocol will enter into force once the ratification instruments are exchanged. It will apply for Canada from 1 January of the year following its entry into force. For the U.K. it will apply for withholding taxes from 1 January of the year following its entry into force, for corporation tax from 1 April following its entry into force, and for income and capital gains tax from 6 April following its entry into force.

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