Released on May 22, 2009

Contents

• Introduction (1)
• Glossary of Terms and Abbreviations (2)
• Part I - Purpose and Scope of the Article XXIX A of the Convention (3-6)
  • Article XXIX A - Objective Tests (5)
  • Article XXIX A - Requests (6)
• Part II - Initiating a Request (7-9)
  • Making a Request (10)
• Part III - Processing the Request (11-24)
  • Request must be Complete (11)
  • Taxpayer Cooperation Required (12-14)
  • Determination Letter - Grant and Expiry of Benefits (15-21)
  • Renewing Treaty Benefits (22-23)
• Part IV - Legal Effect (24-25)
• Part V - Future Changes to the Program (26)
• Part VI - Further Contact (27)
• Appendix I - Information to Include with a Request
• Appendix II - Article XXIX A of the Canada-U.S. Tax Convention

Introduction

1. The Canada Revenue Agency administers requests for the grant of treaty benefits under paragraph 6 of Article XXIX A of the Canada-U.S. Tax Convention. Competent Authority within the Legislative Policy and Regulatory Affairs Branch at Headquarters administers this program.

Glossary of Terms and Abbreviations

2. The following list defines various terms and abbreviations used in this publication.

Article XXIX A

Article XXIX A of the Convention

CRA

Canada Revenue Agency

Competent Authority

The Minister of National Revenue or the Minister's authorized representative

the Convention

The Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital Signed on September 26, 1980, as amended.

Determination Letter

A letter issued by Competent Authority to a taxpayer that either grants or denies treaty benefits pursuant to Article XXIX A

LOB

Limitation on Benefits

Request

A request to Competent Authority pursuant to paragraph 6 of Article XXIX A

Qualifying Person

"Qualifying Person" as defined in paragraph 2 of Article XXIX A

U.S.

United States of America

Part I - Purpose and Scope of Article XXIX A of the Convention

3. Persons that are resident of the U.S. under Article IV of the Convention are entitled to the benefits of the Convention only if they satisfy the requirements set out in Article XXIX A. (For ease of reference, the Article is reproduced in Appendix II.) Article XXIX A is referred to as a "Limitation on Benefits" provision since it limits the grant of treaty benefits to the persons and scenarios it identifies. Insofar as U.S. residents are concerned, this additional eligibility requirement was added to the Convention by the Fifth Protocol - an agreement between Canada and the U.S. signed on September 21, 2007 to update the Convention. The Fifth Protocol entered into force on December 15, 2008. Consequently, the changes made to Article XXIX A by the Fifth Protocol have effect in respect of taxation years that begin after 2008 and in respect of taxes withheld at source, for amounts paid or credited on or after February 1, 2009.

4. Article XXIX A contains provisions designed to prevent residents of third countries from securing benefits of the Convention through structures and arrangements that are considered to give rise to "treaty shopping". Third country residents may seek to secure benefits because the third country does not have a tax treaty with Canada, or to circumvent a less favourable tax treaty that Canada has with the third country.

Article XXIX A - Objective Tests

5. Paragraphs 2, 3, and 4 of Article XXIX A contain a series of objective tests. The presumption underlying each test is that a taxpayer that satisfies the requirements of any of these tests does not have a treaty shopping motive for establishing U.S. residency. As such, a person that is a U.S. resident for the purposes of the Convention that satisfies the test in paragraph 2 of Article XXIX A shall be entitled to all of the benefits of the Convention and a person that satisfies the requirements of paragraph 3 or 4 shall only be entitled to the benefits conferred therein.

Article XXIX A - Requests

6. Article XXIX A also provides that where a resident of the U.S. is not otherwise entitled to the benefits of the Convention under any of the objective tests, the U.S. resident may request Competent Authority to grant treaty benefits pursuant to paragraph 6 of Article XXIX A. This provision contemplates the grant of treaty benefits where the creation and existence of the U.S. resident person did not have as a principal purpose the obtaining of benefits under the Convention or factors suggest that it would not be appropriate to deny the benefits of the treaty to the U.S. resident person. Competent Authority shall determine whether either condition is satisfied on the basis of factors that include the history, structure, ownership and operations of the person.

Part II - Initiating a Request

7. A Request should only be made to Competent Authority if you are not a "qualifying person" for the purposes of the Convention, and paragraph 3 or 4 do not apply to extend treaty benefits to the particular item of income in respect of which treaty benefits are sought. If you are uncertain as to how Article XXIX A applies to your particular situation, you may be able to obtain guidance from the CRA's Income Tax Rulings Directorate. This Directorate issues technical interpretations and advance income tax rulings regarding the application of Canada's income tax laws and its tax treaties. For more information, please refer to Information Circular 70-6R5, Advance Income Tax Rulings.

8. A Request can be made at any time. You need not wait until the CRA has determined that treaty benefits are denied under paragraph 2, 3 or 4 of Article XXIX A.

9. It is expected that U.S. resident individuals and virtually all other U.S. residents will not need to make a Request since they will meet one of the objective tests found in Article XXIX A.

Making a Request

10. If you seek to make a Request then you should note the following information:

1. Before making a Request, you must first determine if you satisfy any of the objective tests set out in paragraphs 2, 3, and 4 of Article XXIX A. You will be expected to provide a full account as to why the benefits sought are not already available to you.
2. If the objective tests result in a denial of benefits provided under the Convention and you seek benefits to be granted by Competent Authority, you should send a complete Request to:
   
   Canada Revenue Agency
   Competent Authority
   Tax Treaties Section
   Legislative Policy Directorate
   Legislative Policy and Regulatory Affairs Branch
   6th Floor, Tower A
   Place de Ville
   320 Queen Street
   Ottawa ON K1A 0L5
   CANADA
3. While there is no prescribed form for making a Request, a complete Request must include the information set out in Appendix I - Information to Include with a Request.
4. A grant of treaty benefits is based on information and representations submitted at the time of making the Request. Any material change from what was presented to Competent Authority will cause treaty benefits to terminate (see paragraph 17 for a description of what constitutes a "material change"). Accordingly, you must undertake to notify Competent Authority and all persons that might reasonably be expected to transact with you believing in your entitlement to treaty benefits at any time subsequent to the grant of the benefits, of any termination of such benefits within 60 days. At the time of submitting the request, you must provide a written statement to Competent Authority that you will assume this responsibility.
5. You or your authorized representative must sign the Request confirming the accuracy and completeness of the facts and information presented. You are responsible for the completeness and accuracy of the information included in the Request.
6. Currently, no user fee is charged for processing a Request.

Part III - Processing the Request

Request must be Complete

11. Competent Authority will only consider a Request if it is complete with all of the required information. A Request will not be considered complete if supporting rationale is not offered or other required information is not provided. If you submit an incomplete Request, you will be contacted and offered the opportunity to provide the required information. A complete Request includes the information set out in Appendix I - Information to Include with a Request.

Taxpayer Cooperation Required

12. You are expected to cooperate fully with Competent Authority by providing requested information and assistance on a timely basis. After submitting a Request, you must inform Competent Authority of any material change in the information or documentation previously submitted as part of, or in connection with, the Request, as well as new information or documentation relevant to the issues under consideration. If you do not provide complete and accurate information or make a misrepresentation then the Competent Authority may suspend or terminate its consideration of your Request.

13. Canadian Competent Authority may consult with and/or provide information about the possible grant of benefits to the U.S. Competent Authority or other tax administration.

14. You may withdraw a Request at any time during the process. In the case of a withdrawal, Competent Authority will not issue a Determination Letter.

Determination Letter - Grant and Expiry of Benefits

15. Competent Authority will undertake to use best efforts to issue a Determination Letter to you within 6 months of receiving your completed Request. We will advise you if we expect any unusual delay.

16. You should retain the Determination Letter and be prepared to present it, as appropriate, to Canadian payers. If applicable, a copy of the Determination Letter should be attached to your Canadian tax return or, if it is filed electronically, be kept in your records for future reference.

17. If Competent Authority determines that benefits are to be granted, they may be allowed retroactively if you also qualify under the relevant facts for the earlier period. The effective date of the grant of benefits will be indicated in the Determination Letter.

18. A grant of treaty benefits by Competent Authority will expire at the time that is the earlier of 3 years from the date of the Determination Letter or immediately before the occurrence of a material change in facts or circumstances. A material change is a change that would have been of potential relevance to Competent Authority's decision to grant the benefits had the change occurred prior to the grant. Such a change may include (but is not limited to) changes related to your residency for the purposes of the Convention, direct or indirect ownership interests, business activities carried on, and business restructurings.

19. If events have occurred and you are unsure of whether they are of material importance then you may contact Competent Authority for its view in respect of the matter.

20. If subsequent to your having been granted treaty benefits, the CRA is of the view that a material change has occurred then Competent Authority shall provide you with formal written notice of the termination of treaty benefits and the date upon which treaty benefits ceased to exist.

21. A grant of benefits by Competent Authority in no way precludes the CRA from taking action to deny benefits, as contemplated under paragraph 7 of Article XXIX A.

Renewing Treaty Benefits

22. If you know or have reason to believe that your entitlement to treaty benefits will terminate and you wish to secure subsequent, and the possibility of uninterrupted, treaty benefits, you are encouraged to submit a Request for new or extended treaty benefits not later than 6 months prior to the expiry of your existing grant of benefits.

23. If your request for new or extended treaty benefits is made as a result of a material change that nullifies an earlier grant of benefits, the renewal request to Competent Authority should include the information set out in Appendix I - Information to Include with a Request with particular attention to explaining the events that caused the grant of benefits to terminate and a rationale to support the extension of treaty benefits under the new facts and circumstances. If no material change has occurred prior to the request for new or extended treaty benefits then, unless otherwise instructed, you need only confirm and/or update the information previously provided to Competent Authority.

Part IV - Legal Effect

24. A Determination Letter is regarded as binding on the CRA, subject to any qualifications stated in the Determination Letter and the comments in Part III.

25. Competent Authority may grant treaty benefits to a person on a retroactive basis where appropriate. In which case, you would be treated for purposes of the Income Tax Act and the Convention as if you had been entitled to treaty benefits during that earlier period. For example, payments made during that earlier period would be eligible for treaty withholding tax rates. However, you would also be subject to any limitations in the Income Tax Act and the Convention applicable to persons entitled to treaty benefits.

Part V - Future Changes to the Program

26. While the information contained in this document is accurate as of the time of its issuance, these guidelines and the practices they inform are expected to evolve and be updated from time-to-time in light of developments including the experience gained in administering Requests.

Part VI - Further Contact

27. To receive more information about this Competent Authority program, telephone 613-670-9545 , email us at LPRA/PLAR.LOB@cra-arc.gc.ca, or contact:

Canada Revenue Agency
Competent Authority
Tax Treaties Section
Legislative Policy Directorate
Legislative Policy and Regulatory Affairs Branch
6th Floor, Tower A
Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
CANADA

Appendix I - INFORMATION TO INCLUDE WITH A REQUEST

General

• The name, address, and identification numbers of the taxpayer (Canadian and foreign) .
• A statement signed by the taxpayer indicating that the representative is authorized to act for the taxpayer in making the request.
• A statement explaining the treaty benefits that the taxpayer seeks to have granted (e.g., dividends, interest, branch profits, etc.) and the relevant treaty provision(s).
• The date on which the taxpayer requests that the determination become effective.
• A statement indicating whether the taxpayer has made a prior request to Competent Authority on the same or a related issue and the ultimate result of that request.
• A statement indicating whether the taxpayer has previously been a resident of a country other than its current country of residence.

Organizational

• A description with appropriate organizational charts that describe the taxpayer's chain of ownership to its ultimate owner(s) and its control over or connections with any related or unrelated entity from which income covered by this request was, or can be expected to be received. Such information should be provided for each year in issue . Ownership information from a broader historical perspective should also be provided with particular attention to providing information in respect of ownership interests that were held by persons who at the time of holding an interest resided in a country with which Canada had no tax treaty.
• A description of the taxpayer's business from a current day and historical perspective and the nature of the business relationship between the taxpayer and all relevant persons for the years in issue.
• If any entity in the taxpayer's chain of ownership is traded on a stock exchange, details in regard to the listing of the entity should, if pertinent, be provided.
• The name, address, and any applicable taxpayer identification number of any entity related to the taxpayer from whom income covered by the request was, or will be, received.
• A statement of other relevant facts including a description of the relevant transactions, activities, or other circumstances pertinent to the matter covered by the request.

Financial Statements

• Financial statements for the years in issue, if available, of the taxpayer and any related entity that paid or will pay income to the taxpayer during the period covered by the request.
• Annual reports for any year in issue during which the taxpayer was a public company.

Tax Law and Administration

• A general description of the taxpayer's liability to tax in the country in which it resides including a description of any factor (e.g., industry sector, tax-exempt status, etc.) that is an important determinant of its liability to, and effective rate of, tax.
• Copies of all tax rulings or tax concessions issued to the taxpayer which provide information descriptive of, or opinions related to, its current operations, business structure or liability to tax.
• If the taxpayer has requested a determination of residency or a certification from its country of residence regarding entitlement to the benefits of the treaty then it should provide a copy of all correspondence.
• Statement whether an audit or review by any tax authority has been or is currently in progress that relates to the relief request and a statement on whether any assessment has been issued by any tax administration in connection with the income in respect of which benefits are sought.
• Statement whether a request for an advanced pricing arrangement or similar arrangement has been or is anticipated to be made with respect to the income that is covered by the request.

Rationale

• A full explanation as to why the taxpayer does not meet each of the objective tests listed in the relevant LOB article (e.g., for a taxpayer resident in the U.S., Article XXIX A).
• A discussion of each factor that is relevant to the determination of whether relief should be granted by Competent Authority. (e.g., a taxpayer resident in the U.S. should submit its analysis on whether subparagraphs 6(a) and (b) of Article XXIX A are satisfied.)
• An explanation as to why the taxpayer's creation did not have as a principal purpose the obtaining of treaty benefits that would not otherwise have been available. And, a separate explanation as to why the taxpayer's continued existence also does not have that principal purpose.
• A statement with respect to whether the taxpayer's failure to secure treaty benefits is wholly or partly as a result of the taxpayer, or any entity in the taxpayer's chain of ownership, not meeting any applicable base erosion test (such as the base erosion test that is subparagraph 2(e) or 4(b) of Article XXIX A of the Canada-U.S. Tax Convention).
• If applicable, a statement explaining the basis upon which the taxpayer would satisfy any one of the objective tests if one or more publicly-traded companies in its chain of ownership were traded on a recognized stock exchange.
• A description of the principal purpose and business activities of the taxpayer with specific reference to its activities in Canada and its country of residence. This statement should include a description of its business, employees, real estate holdings, intangible assets, and the reasons why the taxpayer resides in that country.

Undertaking

The taxpayer must provide the following undertaking to Competent Authority:

__[name of taxpayer]__________________ undertakes to provide written notification to Competent Authority and all persons that might reasonably be expected to transact with ___[name of taxpayer]_______ believing in ___[name of taxpayer]'s______ entitlement to treaty benefits at any time subsequent to the grant of the benefits, of the termination of such benefits within 60 days of the termination.

Appendix II - Article XXIX A of the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital

Article XXIX A - Limitation on Benefits

1. For the purposes of the application of this Convention by a Contracting State,
   
   
   
   1. a qualifying person shall be entitled to all of the benefits of this Convention; and
      
   2. except as provided in paragraphs 3, 4 and 6, a person that is not a qualifying person shall not be entitled to any benefits of this Convention.
2. For the purposes of this Article, a qualifying person is a resident of a Contracting State that is:
   
   1. a natural person;
      
   2. a Contracting State or a political subdivision or local authority thereof, or any agency or instrumentality of any such State, subdivision or authority;
      
   3. a company or trust whose principal class of shares or units (and any disproportionate class of shares or units) is primarily and regularly traded on one or more recognized stock exchanges;
      
   4. a company, if five or fewer persons each of which is a company or trust referred to in subparagraph (c) own directly or indirectly more than 50 percent of the aggregate vote and value of the shares and more than 50 percent of the vote and value of each disproportionate class of shares (in neither case including debt substitute shares), provided that each company or trust in the chain of ownership is a qualifying person;
      
   5. 1. a company, 50 percent or more of the aggregate vote and value of the shares of which and 50 percent or more of the vote and value of each disproportionate class of shares (in neither case including debt substitute shares) of which is not owned, directly or indirectly, by persons other than qualifying persons; or
         
      2. a trust, 50 percent or more of the beneficial interest in which and 50 percent or more of each disproportionate interest in which, is not owned, directly or indirectly, by persons other than qualifying persons;
         

      where the amount of the expenses deductible from gross income (as determined in the State of residence of the company or trust) that are paid or payable by the company or trust, as the case may be, for its preceding fiscal period (or, in the case of its first fiscal period, that period) directly or indirectly, to persons that are not qualifying persons is less than 50 percent of its gross income for that period;
      

   6. an estate;
      
   7. a not-for-profit organization, provided that more than half of the beneficiaries, members or participants of the organization are qualifying persons;
      
   8. a trust, company, organization or other arrangement described in paragraph 2 of Article XXI (Exempt Organizations) and established for the purpose of providing benefits primarily to individuals who are qualifying persons, or persons who were qualifying persons within the five preceding years; or
      
   9. a trust, company, organization or other arrangement described in paragraph 3 of Article XXI (Exempt Organizations) provided that the beneficiaries of the organization are described in subparagraph (g) or (h).
      
3. Where a person that is a resident of a Contracting State and is not a qualifying person, or a person related thereto, is engaged in the active conduct of a trade or business in that State (other than the business of making or managing investments, unless those activities are carried on with customers in the ordinary course of business by a bank, an insurance company, a registered securities dealer or a deposit-taking financial institution), the benefits of this Convention shall apply to that resident person with respect to income derived from the other Contracting State in connection with or incidental to that trade or business (including any such income derived directly or indirectly by that resident person through one or more other persons that are residents of that other State), but only if that trade or business is substantial in relation to the activity carried on in that other State giving rise to the income in respect of which benefits provided under this Convention by that other State are claimed.
   
4. A company that is a resident of a Contracting State shall also be entitled to the benefits of Articles X (Dividends), XI (Interest) and XII (Royalties) if:
   
   
   
   1. its shares that represent more than 90 percent of the aggregate vote and value of all of its shares and at least 50 percent of the vote and value of any disproportionate class of shares (in neither case including debt substitute shares) are owned, directly or indirectly, by persons each of whom is a qualifying person or a person who:
      
      
      
      1. is a resident of a country with which the other Contracting State has a comprehensive income tax convention and is entitled to all of the benefits provided by that other State under that convention;
         
      2. would qualify for benefits under paragraphs 2 or 3 if that person were a resident of the first-mentioned State (and, for the purposes of paragraph 3, if the business it carried on in the country of which it is a resident were carried on by it in the first-mentioned State); and
         
      3. would be entitled to a rate of tax in the other Contracting State under the convention between that person's country of residence and that other State, in respect of the particular class of income for which benefits are being claimed under this Convention, that is at least as low as the rate applicable under this Convention; and
         
   2. the amount of the expenses deductible from gross income (as determined in the company's State of residence) that are paid or payable by the company for its preceding fiscal period (or, in the case of its first fiscal period, that period) directly or indirectly to persons that are not qualifying persons is less than 50 percent of the company's gross income for that period.
      
5. For the purposes of this Article,
   
   
   
   1. the term "debt substitute share" means:
      
      
      
      1. a share described in paragraph (e) of the definition "term preferred share" in the Income Tax Act, as it may be amended from time to time without changing the general principle thereof; and
         
      2. such other type of share as may be agreed upon by the competent authorities of the Contracting States.
         
   2. the term "disproportionate class of shares" means any class of shares of a company resident in one of the Contracting States that entitles the shareholder to disproportionately higher participation, through dividends, redemption payments or otherwise, in the earnings generated in the other State by particular assets or activities of the company;
      
   3. the term "disproportionate interest in a trust" means any interest in a trust resident in one of the Contracting States that entitles the interest holder to disproportionately higher participation in, or claim to, the earnings generated in the other State by particular assets or activities of the trust;
      
   4. the term "not-for-profit organization" of a Contracting State means an entity created or established in that State and that is, by reason of its not-for-profit status, generally exempt from income taxation in that State, and includes a private foundation, charity, trade union, trade association or similar organization;
      
   5. the term "principal class of shares" of a company means the ordinary or common shares of the company, provided that such class of shares represents the majority of the voting power and value of the company. If no single class of ordinary or common shares represents the majority of the aggregate voting power and value of the company, the "principal class of shares" are those classes that in the aggregate represent a majority of the aggregate voting power and value of the company; and
      
   6. the term "recognized stock exchange" means:
      
      
      
      1. the NASDAQ System owned by the National Association of Securities Dealers, Inc. and any stock exchange registered with the Securities and Exchange Commission as a national securities exchange for purposes of the Securities Exchange Act of 1934;
         
      2. Canadian stock exchanges that are "prescribed stock exchanges" or "designated stock exchanges" under the Income Tax Act; and
         
      3. any other stock exchange agreed upon by the Contracting States in an exchange of notes or by the competent authorities of the Contracting States.
         
6. Where a person that is a resident of a Contracting State is not entitled under the preceding provisions of this Article to the benefits provided under this Convention by the other Contracting State, the competent authority of that other State shall, upon that person's request, determine on the basis of all factors including the history, structure, ownership and operations of that person whether:
   
   
   
   1. its creation and existence did not have as a principal purpose the obtaining of benefits under this Convention that would not otherwise be available; or
      
   2. it would not be appropriate, having regard to the purpose of this Article, to deny the benefits of this Convention to that person.
      

   The person shall be granted the benefits of this Convention by that other State where the competent authority determines that subparagraph (a) or (b) applies.
   

7. It is understood that this Article shall not be construed as restricting in any manner the right of a Contracting State to deny benefits under this Convention where it can reasonably be concluded that to do otherwise would result in an abuse of the provisions of this Convention.