News Share

The Tax Hub

Daily Tax Newsletter

US-Canada

4 November 2008

Responsive image

Protocol to treaty between United States and Canada ratified

On 23 September 2008, the United States ratified the fifth amending protocol, signed on 21 September 2007, to the income and capital tax treaty between the, United States-Canada signed on 26 September 1980

US Senate Foreign Relations Committee publishes report on US-Canada income tax protocol

On 11 September 2008, the US Senate Committee on Foreign Relations published a report regarding the US-Canada income tax protocol signed on 21 September 2007 to the US-Canda income tax treaty, signed on 26 September 1980, as amended by the protocols done on 14 June 1983, 28 March 1984, 17 March 1995, and 29 July 1997. The report urges the full US Senate to act promptly to give advice and consent to ratification of the protocol, with a condition related to the arbitration provision.

The Senate committee's report discusses the purpose, background, major provisions of the protocol, details of its entry into force, implementing legislation, the committee action, the committee's recommendation and comments, a Resolution of Advice and Consent to Ratification, and a copy of the Treasury Department's Technical Explanation of the protocol.

Of particular interest, the report notes that the Canada protocol includes a special permanent establishment rule for services that expands the standard definition of a permanent establishment in a way that affects enterprises that provide services. This new rule is similar to the permanent establishment rule also being introduced in the US-Bulgaria treaty and protocol. The report notes that the US Treasury Department testified to the Senate committee that these provisions are not a shift in US tax treaty policy and will not be included in the US Model Convention (2006). The Senate committee urged that they also not be included in future US treaties.

Additionally, the report discusses the new binding arbitration mechanism and the concerns that it has with this provision. For a report on the conditions for periodic reporting imposed by the Senate committee with regard to the arbitration provision in the Canada protocol (and also in the arbitration provisions in the 2006 US-Germany protocol and new US-Belgium treaty).

The Senate committee report highlights the new provision in the protocol for fiscally transparent and hybrid entities that would prevent the use of such entities to claim the benefits when the investors are not subject to tax on the income in their state of residence. The Senate committee noted that this provision was intended to prevent tax-abuse but was potentially overbroad, and noted further that the US Treasury Department did not contemplate including it in future US treaties.

The report discusses a new rule for dual-resident corporations which provides that if a dual residence company is created under the laws in force in one treaty country but not under the laws in force in the other treaty country, the company is deemed to be a resident only of the first treaty country. The Senate committee noted that this provision was likely to help in preventing tax abuse but discussed several possible drawbacks.
A copy of the report is available from the Congressional Report website.

Fifth protocol to treaty between Canada and US – US Senate Foreign Relations Committee refers to full Senate for ratification with condition (arbitration)

On 11 September 2008, the US Senate Committee on Foreign Relations reported the fifth protocol to the US-Canda income and capital tax treaty, signed at Chelsea on 21 September 2007, to the full US Senate and recommended that advice and consent be given to ratification.

Accompanying the Senate Committee's report is an Executive Report recommending ratification of the protocol on the condition that the US Department of Treasury submit periodic reports to Congress on the mandatory binding arbitration provisions included in the Canadian protocol, in the US-Belgium treaty and in the protocol to the US-Germany treaty that were ratified at the end of 2007.

The Executive Report requires that, before the first arbitration conducted under the new arbitration procedures in the Canadian protocol, the US Secretary of Treasury shall transmit the text of the rules of procedure to be used by the arbitration board, including conflict of interest rules to be applied to members of the arbitration board to the US Senate Committees on Finance and Foreign Relations of the Senate and to the US Joint Committee on Taxation.

The texts of the rules to be used under the similar arbitration procedures in the US-Belgium treaty and the protocol to the US-Germany treaty, are also required to be submitted.

The Executive Report further requires that 60 days after a determination has been reached by an arbitration board in the tenth arbitration proceeding involving the aforementioned countries, the Secretary of Treasury shall prepare and submit a detailed report to the Joint Committee on Taxation and the Committee on Finance of the Senate regarding the operation and application of the arbitration mechanism. This detailed report must be submitted on an annual basis for a period of five years thereafter.

Powerful Tax Tools

NEW

FX Rates

Global FX Rates including Tax Year Average FX Rates and Spot Rates for all Reporting Currencies.

NEW

Corporate Tax Rates

Corporate tax rates, surtaxes, and effective tax rates for the current year, as well as historical rates and approved future rates.

NEW

Country Analysis

Detailed tax guidance for companies doing business in over 100 countries, including summaries and snapshots of key tax facts and issues.

NEW

Cross Border Tax Calculator

Calculate total tax costs and benefits of a cross border transaction including withholding tax, participation exemption and foreign tax credit rules.

NEW

Cross Border Tax Rates

Provides Domestic, treaty and EU cross border tax rates for over 5,000 country combinations for 9 different payment streams.

NEW

OECD BEPS Project

Complete overview of the OECD BEPS Project, including daily BEPS news, country adoption of BEPS measures, and an overview of the 15 BEPS Actions.

NEW

Tax Calendar

Customizable calendar tool that tracks corporate income tax, value added tax and transfer pricing obligations by country or entity.

NEW

Tax Forms

English translations of key tax forms for over 80 countries, including tax return forms, treaty benefit forms, withholding tax forms, and more.

NEW

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

NEW

Worldwide Tax Planner

Calculates the worldwide tax cost of what-if scenarios based on legal entity structure, taxable income, and cross border transactions.

NEW

Certified Rates Report

Customizable Certified Rates Report providing updated corporate and withholding tax rates at the end of each month for over 100 countries.

NEW

Withholding Tax Minimizer

Enables quick calculation of tax costs and benefits of cross border transactions considering all possible transaction combinations and optimal routes.

NEW

VAT Rates

Provides value added tax (VAT) rates, goods and services tax (GST) rates and other indirect tax rates for over 100 countries.

NEW

NOL Calculator

Country specific calculator to determine how net operating losses can be utilized in carryback and carryforward years.

NEW

Transfer Pricing Calculator

Calculates TP ratios under various TP methods and calculates the difference between target ratios and actual ratios.

NEW

Individual Income Tax Rates

Individual tax rates for over 100 countries.

Play of the Day

Crosss Border Rates

Provides Domestic, treaty and EU cross border tax rates for over 5,000 country combinations for 9 different payment Streams.

We’re here to help

We’re here to answer any questions you have about the Orbitax products and services.

Send us a message

Who’s behind Orbitax?

We’re committed to providing high value, low cost tax research and management solutions.

Learn More