Canco (which is purely a holding company for FA carrying on business in a third country) pays a dividend to USco, which is owned by individuals resident in a non-treaty country but which is engaged in the active conduct of a trade or business in the U.S. FA is in the same business as USco and its activities are all connected to USco’s business. Would Art. XXIX-A(3) of the Canada-US Treaty be available respecting such dividend?
CRA noted that of the three tests set out in Art. XXIX A(3) –
- the US is engaged in the active conduct of a trade or business in the U.S.;
- the income is “derived from [Canada] in connection with, or incidental to, that trade or business (including any such income derived directly or indirectly by [the U.S. resident] through one or more other [Canadian residents] (the “connected test”); and
- the trade or business carried on in the U.S. is substantial in relation to the activity carried on in Canada giving rise to the income in respect of which treaty benefits are claimed -
the connected test will not be satisfied.
To the extent that this denial is not considered appropriate in the circumstances, the taxpayer may request special relief through the CRA competent authority under Art. XXIX-A(6).