Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Definition of the term "fiscally transparent entity" as used in Article IV(6) of the Fifth Protocol to the Canada-US Income Tax Convention
2007-026190
July 17, 2008
Re: IFA 2008 Annual Tax Conference
Question: The term "fiscally transparent" is not defined in the Fifth Protocol signed on September 21, 2007 (the "Protocol") amending the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital.
How does the CRA interpret the term "fiscally transparent"?
CRA Response:
The CRA is of the view that an entity is "fiscally transparent" if the income it earns is taxed at the beneficiary, member, or participant level. Entities that are subject to tax, but with respect to which tax may be relieved under an integrated system, are not considered "fiscally transparent".
Entities that are fiscally transparent for US tax law purposes include limited liability companies that do not check the box.
Entities that are fiscally transparent for Canadian tax law purposes include partnerships. A trust that is not disregarded for Canadian tax purposes would generally not be considered to be an entity that is "fiscally transparent".
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