Two U.S. corporations that were “qualifying persons” for purposes of the Canada-U.S. Treaty (USCo1 and USCo2) held 58% and 42%, respectively, of LLC1 which held LLC2 which, in turn, held LLC3. LLC3 operated a Canadian branch business.
Headquarters stated:
[T]he fact that there may be more than one fiscally transparent entity in the corporate chain does not alter the fact that the condition of there being an entity that is fiscally transparent and through which a U.S. resident person derives income is already met.
Accordingly, if all the LLCs were fiscally transparent for U.S. income tax purposes (so that LLC1 was a partnership for U.S. purposes), USCo1 and USCo2 would be considered to be deriving income through LLC3 that met the same tax treatment condition in Art. IV(6) – and, similarly, LLC1 Itself would be considered to be deriving such income as a qualifying person if it had chosen to be treated as a corporation. Thus, in both scenarios, such income would be entitled to the branch profits rate reduction in Art. X(6).