Principal Issues: Update on CRA review of hybrid partnerships (also referred to as synthetic NROs). Whether the CRA will continue to give treaty benefits to partners resident in a treaty country that treats the partnership as a corporate entity.
Position: Still under review.
Reasons: Ongoing consultations within the government.
Question 16. Hybrid Partnerships (Rulings - International & Trusts Division)
At the 2004 International Fiscal Association seminar in Montreal (the "IFA Seminar"), representatives from CRA stated that CRA is reviewing its position regarding the treatment of a partnership formed in Canada and its U.S. partners, when the Canadian partnership is treated as a corporation under the U.S. check-the-box rules. CRA's current position is that for Canadian tax purposes it looks through the partnership to permit treaty benefits to the partners on amounts received by that partnership. At the IFA Seminar, CRA stated that it was reviewing its position because it conflicts with Paragraph 6.2 of the commentary to Article 1 in the OECD model convention ("Paragraph 6.2"). Has CRA completed its review? Would CRA provide an update on the status of its review, the issues considered, the outcome, and the likely date when the results of its review will be published?
CRA Response
CRA's review of this matter is not yet complete. We are presently consulting within the government and consequently we have not yet determined when we expect to publish the results of our review. As explained at the IFA Seminar, the primary issue is the correct interpretation and application of Paragraph 6.2, which officially became part of the OECD Commentary in 2000. We are not reviewing the flow-through of treaty benefits for non-resident partners except in the limited context of partnerships formed in Canada that are treated as corporations in the partners' country of residence.
Until our review is complete, we are maintaining our present position with respect to the flow-through of treaty benefits to U.S. partners of "hybrid" partnerships.