CRA indicates that where Canco is held by fiscally transparent Franceco, which is held by LP with only some US partners, there is a choice as to which Treaty to apply

A partnership whose partners are resident in the U.S. and in other countries with which Canada does and does not have a treaty owns a French entity (that is fiscally transparent for U.S., but not Canadian or French purposes) that earns dividends and interest from a Canadian company. Can the Canadian payor of the dividends determine its withholding tax obligations in accordance with the relevant articles under either the Canada-France, or Canada-US, Treaty?

CRA noted that the first option is that, if IV(6) of the Canada-US Treaty applies, and some of the dividend paid by the Canadian company to the French company is deemed to be derived by the US partners, US Treaty benefits can be claimed to reduce the withholding rate on the portion of the dividend attributable to those partners, under Art. IV(6).

The second option is that, from a Canadian perspective, there is a single dividend payment from a Canadian entity to a French entity, so that the French Treaty is applicable to the entire amount of the dividend.

CRA indicated that the two options are mutually exclusive and exhaustive – either the French Treaty applies to the full amount of the dividend, or the US Treaty applies pro-rata to the US partners. (Presumably, the same analysis would apply to the payment of interest.)

Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.5 under Treaties – Income Tax Conventions – Art. 4.