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 isn't the CRA following the outcome of the case: TD Securities (USA) LLC v. The Queen (2010 DTC1137)?
Position: It is the 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 prior conferences.
ONTARIO TAX CONFERENCE October 30, 2012
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?
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.
October 30, 2012
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2012
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2012