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Canada; Turkey

27 July 2011

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Treaty between Canada and Turkey – details

Details of the income and capital tax treaty and protocol between Canada and Turkey, signed on 14 July 2009, have become available. The treaty was concluded in the English, French and Turkish languages, each text having equal authenticity. The treaty generally follows the OECD Model Convention.

The maximum rates of withholding tax are:

-   20% on dividends in general (Art. 10(2)(b) of the treaty) and 15% if the beneficial owner is a company (other than a partnership) which holds directly shares representing at least 10% of the voting power of the company paying the dividends (Art. 10(2)(a) of the treaty);
-   15% on interest (Art. 11(2) of the treaty); and
-   10% on royalties (Art. 12(2) of the treaty).

Deviations from the OECD Model include that:

-   the term "permanent establishment" also encompasses:
     
-   a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities continue for a period of more than six months (Art. 5(3)(a) of the treaty); and
-   the furnishing of services, including consulting services, by an enterprise of a contracting state through employees or other individuals engaged by the enterprise for such purposes in the other contracting state, but only where such activities continue (for the same or a connected project) within that state for a period or periods aggregating more than 183 days within any 12-month period (Art. 5(3)(b) of the treaty);
-   the term "royalties" includes payments for the use of, or the right to use of recordings for radio and television, and industrial, commercial or scientific equipment (Art. 12(3) of the treaty);
-   the treaty contains a provision regarding independent personal services based on Art. 14 of the UN Model Convention (Art. 14 of the treaty);
-   pensions and annuities arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other state (Art. 18(1) of the treaty); and
-   the term "dividends" in the case of Turkey shall also include the income from investment funds and investment trusts (Para. 6 of the protocol).

Both countries provide for the credit method to avoid double taxation (Art. 23(1) and (2) of the treaty).

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