CRA accepts that dividends paid to a U.S. parent in Chapter 11 are beneficially owned by it rather than the creditors

A Canadian subsidiary which may have ceased operations but continued to earn income from securitization trusts including deferred purchase price, will pay cash dividends to its U.S. parent in the same (former) business, which is now managed by the Plan Administrator under a Chapter 11 Plan.  The shareholder of the parent is an offshore fund whose members are unknown, so that it cannot be said that it is a qualifying person under Art. XXIX-A of the Treaty.

CRA ruled that the dividends will benefit from the Treaty-reduced withholding rate of 5% on the basis that the parent is the beneficial owner of the dividends (notwithstanding that in economic substance the dividends will be beneficially owned by the creditors) and that the rule in para. 3 of Art. XXIX-A is applicable, as the dividends will be derived by the parent "in connection with an active trade or business carried on in the United States that is substantial in relation to the activity in Canada that gave rise to the income."  In addition to reflecting a look-through approach to characterizing the dividend as being business income, this approach is also consistent with domestic jurisprudence indicating that a virtual cessation of activity is required before a business can be considered to have ceased.

Neal Armstrong.  Summary of 2012 Ruling 2012-0435211R3 under Treaties - Art. 29A.