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: 2009 IFA Conference Question #1 - Beneficial Owner
Position: See comments
Reasons: See comments
2009 IFA Conference, May 21, 2009
Canada Revenue Agency Round Table
Question 1 - Beneficial Ownership
Given the FCA decision in Prevost Car, what is the CRA's current view in regard to beneficial ownership as it relates to back-to-back dividends, interest and royalties?
CRA Response
The Federal Court of Appeal in The Queen v. Prévost Car Inc. confirmed the Tax Court's decision that the Dutch holding company, Prévost Holding B.V. ("Prévost B.V.) was the beneficial owner of dividends paid to it from Prévost Car Inc. and therefore, Prévost B.V. was entitled to the 5% withholding rate under Article 10 of the Canada-Netherlands Income Tax Convention.
In the decision, the Federal Court of Appeal confirmed the Tax Court's finding that the "beneficial owner" of a dividend is the person who receives the dividend for his or her own use and enjoyment and assumes the risk and control of the dividend. In interpreting the meaning of the term "beneficial owner" as it applies to Canada's income tax conventions, the Court referred to the OECD Conduit Companies Report 1 , and the 2003 amendments to the OECD Commentary 2 , both of which support the position that the term "beneficial owner" requires something more than strict legal title. In this respect, the Court implied that where an intermediary acts as a mere conduit or funnel in respect of an item of income, the intermediary would not have sufficient economic entitlement to the income to be considered the "beneficial owner". The CRA will examine future back-to-back dividend, interest and royalty cases that it encounters with a view to whether an intermediary could, on the facts, be considered a mere conduit or funnel.
The CRA is in the process of preparing guidance for public distribution on its views of what constitutes abusive treaty shopping. To those cases that it considers abusive, the CRA intends to apply Limitation on Benefits provisions (in those treaties that contain such provisions), the GAAR, and specific anti-abuse provisions such as those in Articles 10, 11 and 12 of the Canada-U.K. Income Tax Convention, as well as the "beneficial owner" principle as now defined by the courts.
ENDNOTES
1 Double Taxation Conventions and the Use of Conduit Companies, adopted by the OECD Council on November 27, 1986
2 Organization for Economic Co-operation and Development, Model Tax Convention on Income and on Capital
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