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.
CORPORATE MANAGEMENT TAX CONFERENCEROUND TABLEJUNE 1993
Canada-Mexico Income Tax Convention (1991)
Question
The Protocol to the Canada-Mexico Income Tax Convention (1991) (the "Convention") provides that
"In the event that pursuant to an Agreement or Convention concluded with a country that is a member of the Organization for Economic Co-operation and Development after the date of signature of this Convention, Mexico agrees to a rate of tax on interest or royalties that is lower than 15 per cent, then such lower rate (but not in any event a rate below 10 per cent) shall apply for the purpose of paragraph 2 of Article 11 with respect to interest or paragraph 2 of Article 12 with respect to royalties, as the case may be."
Since the date of the signature of the Convention, Mexico has signed tax conventions or agreements ("tax treaties") with Sweden, Germany and the United States which provide for a rate of withholding tax that is lower than 15 percent in certain circumstances on interest and royalties.
Does it follow that interest and royalties are now subject to a lower rate of withholding tax under the Convention? If so, does this lower rate apply to all interest payments or only those specified in the other tax treaties. (e.g. interest paid to banks)? As of what date would the lower rate be applicable?
Department's Position
Where Mexico enters into a tax treaty with a member of the OECD that provides for a lower rate of withholding tax on interest and royalty payments than under the Convention, such lower rate(s) (not below 10%) of withholding tax on interest and royalties should be applicable to such payments under the Convention. However, the reduced rate or rates of withholding tax would not take effect until the time that such lower rate of withholding tax takes effect under the relevant tax treaty. It should be noted that the lower rate of withholding tax will not apply to all interest and royalty payments but only to those payments that receive the lower rate of withholding tax under the relevant tax treaties.
The Canadian competent authority are currently attempting to clarify with their counterparts in Mexico which rates have been lowered in respect of interest and royalties and the effective dates the changes in rates in the Convention will enter into force.
Prepared by: K.B. Harding
Date: May 28, 1993
Control # 931569
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