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Canada-Taiwan

22 January 2016

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Update - Tax Arrangement between Canada and Taiwan

The income tax arrangement between Canada and Taiwan was signed on 15 January 2016. The arrangement is the first of its kind between the two jurisdictions.

Taxes Covered

The arrangement covers Canadian taxes imposed under the Income Tax Act, and Taiwan profit seeking enterprise income tax, individual consolidated income tax, and income basic tax.

Residence

If a company is considered resident in both Contracting Parties, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company will not be entitled to claim any relief or exemption from tax provided by the arrangement.

Service PE

The arrangement includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting Party furnishes services in the other Party through employees or other engaged personnel for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company that directly or indirectly holds at least 20% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties - 10%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party;
  • Gains from alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
  • Gains from the alienation of shares in a company or of interests in a partnership, trust or other entity deriving more than 50% of its value directly or indirectly from immovable property situated in the other Party

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Double Taxation Relief

Both parties apply the credit method for the elimination of double taxation.

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not be available if one of the main purposes of any person concerned with the establishment, acquisition or maintenance of the person that is the beneficial owner, or with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest or royalties are paid, is to obtain the benefits of those Articles. The limitation is included in each of those Articles.

Article 26 (Miscellaneous Rules) includes the provision that the arrangement will not apply to any company, trust or other entity that is resident of a Contracting Party and beneficially owned or controlled, directly or indirectly, by one or more persons who are not residents of that Party, if the amount of the tax imposed on the income is substantially lower than the amount that would be imposed if all the shares or interests were beneficially owned by residents of that Party.

In addition, Article 26 (Miscellaneous Rules) includes the provision that if any income is taxed in a Contracting Party by reference to the amount remitted or received in that Party and not by reference to the full amount, then any relief from tax provide for by the arrangement in the other Party will be limited to the amount of income taxed by the first-mentioned Party.

Entry into Force and Effect

The arrangement will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

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