7 November 2012 External T.I. 2012-0464381E5 - Non-resident withholding on dividends

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: Should Part XIII tax be withheld and remitted where an Alberta corporation pays a dividend to a US corporation?

Position: Yes.

Reasons: Wording of the Act.

XXXXXXXXXX
2012-046438
Eli Kae Moore

November 7, 2012

Dear XXXXXXXXXX:

Re: Withholding taxes on cross border dividends

We are responding to your email of September 14, 2012, in which you requested the Canada Revenue Agency's views regarding withholding on dividends paid by a Canadian corporation to a non-resident shareholder.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Where a corporation resident in Canada pays an amount that is determined to be a dividend to a shareholder who is a non-resident of Canada, subsection 212(2) of the Income Tax Act imposes a tax of 25% on the non-resident recipient. In addition, section 215 of the Act requires that the payor withhold and remit the 25% tax to the Receiver General on behalf of the non-resident recipient. Failure to withhold and remit the tax as required by section 215 results in the payor becoming liable to pay the tax on behalf of the non-resident recipient. Where the payor is a corporation which fails to withhold and remit as required by section 215, section 227.1 causes the directors of the corporation to become jointly and severally liable along with the corporation for the amount not withheld and remitted.

The required form for reporting a dividend payment to a non-resident shareholder is Form NR4, Statement of Amounts Paid or Credited to Non-Residents of Canada. Further information in this regard can be found in our publication T4061, NR4 - Non-Resident Tax Withholding, Remitting, and Reporting – 2012, the current version of which is available through our website.

In the case of a dividend recipient who is resident in a jurisdiction with which Canada has entered into a convention respecting income taxation, the relevant rate of withholdings may be reduced. For example, where the recipient of the above-noted dividend is a US resident, Article X of the Canada-United States Convention with Respect to Taxes on Income and on Capital may reduce the withholding rate to either 5% or 15%, as facts permit.

We trust that our comments will be of assistance.

Yours truly,

Robert Demeter
Section Manager
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch