Canadian investors in an LLP viewed as a U.S. corporation generally should not be entitled to U.S. Treaty benefits on U.S. source income of the LLP

The conversion of an LLP or LLLP to a limited or general partnership (which CRA is requiring to occur before 2018 in order for it to be accepted as having been a partnership all along) “should be accorded non-recognition treatment” under the Code.

If a LLP or LLLP (viewed by CRA as a U.S. corporation) were subject to Canadian corporate tax by virtue of being considered to have a Canadian permanent establishment, the U.S. should permit the U.S. partners foreign tax credits for the tax to the same extent as if the LLP/LLLP were regarded as a partnership in Canada.

The Canadian tax treatment to Canadian investors in a U.S. LLP/LLLP would be affected to a significant extent by whether it constituted a foreign affiliate or controlled foreign affiliate to them.

From the U.S. tax standpoint, Canadian partners of the LLP/LLLP should not generally have access to Treaty benefits for income (e.g., U.S.-source dividends) earned through the LLP/LLLP. An open question is whether Article IV(7)(a) blocks the application of X(6) and results in a Code 30% branch profits tax.

Neal Armstrong. Summary of Nathan Boidman, Peter Glicklich and Michael Kandev, "Canada's New Approach to U.S. LLPs and LLLPs," Tax Management International Journal, 2016, p.479 under s. 248(1) – corporation.