Principal Issues: How should the Canadian payor of dividends and interest determine its withholding obligation where Article IV:6 of the Canada-US Treaty may apply in a triangular situation.
Position: In the situation described, where the ultimate owners of the entity, that is fiscally transparent for U.S. tax purposes, resident in a third country include both U.S. and non-U.S. residents, such entity would have a choice. It could claim treaty benefit under the Canada-US Treaty with respect to the portion of the dividends or interest that is deemed to be paid to the U.S. residents by article IV:6 of the Canada-US Treaty. Alternatively, it could claim the benefit under the treaty between Canada and that third country with respect to the full amount of the dividends or interest. The Canadian payor should determine its withholding obligation accordingly.
Reasons: A textual, contextual, and purposive analysis of paragraph 212(1)(b), subsection 212(2) and the relevant treaty provisions, taking into account Canada's general treaty policy with respect to fiscally transparent entities in a triangular situation.