The Joint Committee comments on the proposed expanded partnership withholding rule in s. 212(13.1)(a)

Proposed s. 212(13.1)(a) - by deeming a partnership to be a person resident in Canada respecting the portion of a particular amount paid or credited by the partnership to a non-resident person where the amount is deductible in computing a partner’s share (to the extent taxable under Part I) of the partnership's income or loss - would create significant practical issues that would be extremely difficult to deal with. Such concerns would arise for instance regarding a foreign partnership whose only connection to Canada is the residence of some partners who might be passive and constitute a very small minority of the partners.

Indeed, compliance may not be possible at all, for example, where a foreign fund organized as a partnership has a tiered partnership as an investor, and there is a transfer of a partnership interest to a Canadian resident 2 or more levels above (giving rise to a withholding tax obligation thereafter to the fund even though such transfer occurs without its knowledge).

Neal Armstrong. Summary of Joint Committee, “August 9, 2022 Technical Amendments - Application of Part XIII tax where payer or payee is a partnership,” 22 March 2023 Joint Committee Submission under s. 212(13.1)(a).