CRA finds that a tax-exempt Norwegian fund received a Canadian REIT distribution that was “taxable” in Norway, so that Treaty-reduced withholding applied
Art. 22(2) of the Canada-Norway Treaty provides that where a resident of Norway derives income falling under the Article from a source in Canada, Canada may tax that amount. However, it goes on to provide:
Where such income is income from a trust, other than a trust to which contributions were deductible, the tax so charged shall, provided that the income is taxable in the Contracting State in which the beneficial owner is a resident, not exceed 15 per cent of the gross amount of the income.
[I]f a distribution from a Canadian-resident trust would otherwise be included in the Norwegian resident’s taxable income, but the recipient itself is, under Norwegian tax law, exempt from the imposition of income taxation, we would consider that the “income is taxable” for the purpose of paragraph 2 of Article 22. In contrast, if the distribution were made to a Norwegian resident that was otherwise taxable under Norwegian tax law but entitled under Norwegian tax law to exclude the distribution from income, the requirements of paragraph 2 would not be met.
CRA went on to find that since an income distribution from a Canadian REIT to a Norway resident was exempt in its hands because of a general exemption from Norwegian income tax rather than because of a specific exclusion of the distributions from its income, the income distribution was eligible for the Treaty-reduced rate of 15%.
Neal Armstrong. Summary of 28 March 2018 External T.I. 2016-0672941E5 under Treaties - Art. 22.