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: Why CRA is not following TD Securities (USA) LLC Tax Court of Canada decision.
Position: It is CRA's position that unless Article IV(6) applies and the shareholders of the LLC are either qualifying persons or Article XXIX(3), (4) or (6) apply, a fiscally transparent entity is not entitled to treaty benefits.
Reasons: Interpretation of the law. Consistent with previous written positions and statements made at other conferences.
September 25, 2012
BC TAX CONFERENCE 2012
CRA Roundtable
Question 10
US LLCs
In TD Securities (USA) LLC v. The Queen, 2010 DTC 1137, the Tax Court of Canada held that the taxpayer, a US LLC, was entitled to the reduced 5% branch tax rate under Article X of the Canada-US Tax Treaty (the "Treaty"). The CRA did not appeal the decision and yet in published positions the CRA has stated that it will continue to treat a US LLC as fiscally transparent and not a resident of the United States for purposes of the Treaty. On what basis is the CRA disregarding the law as determined by the TD Securities (USA) LLC case?
CRA Response
It remains the CRA's position that a fiscally transparent LLC created pursuant to the laws of the United States does not qualify as a "resident" of the US for purposes of the definition in paragraph 1 of Article IV of the Treaty on the basis that the LLC is not itself liable to tax in the US. In this respect, the CRA is not in agreement with the decision in TD Securities, where the Tax Court of Canada held that an LLC created pursuant to the laws of the US and which is treated as a fiscally transparent entity for US tax purposes is entitled to the benefits of the Treaty in its own right in respect of an item of Canadian source income if that item of income was fully and comprehensively taxed in the US in the hands of one or more persons who were residents of the US under the Treaty.
However, with the coming into force of the Fifth Protocol to the Treaty, the CRA decided not to appeal the Tax Court of Canada decision in TD Securities (which involved pre-5th Protocol timeframes). It is the CRA's position that Article IV(6) establishes the parameters under which the benefits of the Treaty may be claimed by a fiscally transparent LLC. For taxation years in which the 5th Protocol applies, Treaty benefits claimed by a fiscally transparent LLC with respect to an amount of income, profit or gain will be permitted only if the amount is considered to be derived, pursuant to Article IV(6), by a person who is a resident of the United States and that person is a "qualifying person" or is entitled, with respect to the amount, to the benefits of the Treaty pursuant to paragraph 3,4 or 6 of Article XXIX-A.
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Wayne Doiron
905-721-5208
File# 2012-045759
BC CTF Conference - September 25, 2012
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