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.
Dear Mr. XXXX
As you are aware, discussions over the last number of months have centered around the changes in the Canada-U.S. Tax Convention, Article XXI and the flow of the dividends and interest free from withholding tax to U.S. exempt organizations. A similar Article was present in the old Treaty but, the exemption was limited only to charitable non- profit organizations. With the inclusion of employee pension funds a much larger investment group may now qualify for exemption.
The procedure developed by the XXXX which is referred to as the Tax Exempt Dividend Service ("TEDS"), would permit the Canadian payer to deduct tax only from those dividends which are not beneficially owned by Article XXI exempt organizations. The creation of a centralized withholding agent in Canada, who would assume the liability to withhold under subsection 215(3)of the Income Tax Act, will deal with the deducting remitting and reporting for all dividends paid to the nominee name XXXX
We have had discussions with the XXXX with respect to their role as the centralized withholding agent and we are satisfied that there is a clear understanding of the TEDS proposal. A working paper detailing the TEDS procedures is attached for your review and any comments or changes you may wish to make should be communicated to this office. This is a first draft and will be amended once all interested parties have had an opportunity to review.
In this regard dividends and interest which are registered in the nominee name of XXXX may be paid over to XXXX free of withholding tax. Once the test period has been concluded a further letter will be issued confirming the status of the arrangement.
Sincerely,
K. C. McLean Director Source Deductions XXXX
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