CRA takes pragmatic approach to meaning of “regularly traded” under the Canada-U.S. Treaty?
A "U.S. Holdco" which was the parent of a ULC and was not a qualifying person for purposes of the Canada-U.S. Treaty was able to access the Treaty-reduced rate on a deemed (s. 84(1)) dividend received by it from the ULC on the basis of the derivative benefits rule in Art. XXIX A, para. 4. Both the immediate parent and grandparent of U.S. Holdco were entitled to full benefits under the Treaty between Canada and their country of residence, which was not the U.S. (with the dividend withholding tax rate under that Treaty presumably being no higher than under the Canada- U.S. Treaty); the common shares of the ultimate parent traded on recognized stock exchanges; and U.S. Holdco was represented to satisfy the "base erosion test" (re expenses paid to non- qualifying persons).
The ruling contains no explicit representations respecting the requirement that the shares of the ultimate parent be "regularly traded" on the recognized stock exchanges. After a screed on the U.S. meaning of this requirement (which CRA may have adopted - see 8 December 2009 TEI Round Table, Q. 4, 2009-0347701C6), the 2007 U.S. Technical Explanation states that "subject to the adoption by Canada of other definitions, the U.S. interpretation of ‘regularly traded’ and ‘primarily traded’ will be considered to apply, with such modifications as circumstances require, under the Convention for purposes of Canadian taxation."
The usual 2-step (increase PUC, then distribute it) was used to deal with the hybrid status of the ULC.
Neal Armstrong. Summaries of 2013 Ruling 2012-0471921R3 under Treaties, Art. 4 and 29A.