Principal Issues: Can the CRA confirm its stand on the possible application of the GAAR to treaty shopping arrangements?
Position: Yes, the CRA confirms it continues to contemplate the application of the GAAR to treaty shopping arrangements.
Reasons: The GAAR applies to deny tax benefits arising under tax treaties with the same force as tax benefits arising under the Act.
2015 International Fiscal Association Conference
CRA Roundtable
Question 2 - GAAR and treaty shopping
Considering recent developments, can the CRA outline its position on the possible application of the GAAR to treaty shopping arrangements?
CRA Response
The CRA does not view the comments on treaty shopping that were made in the February 2014 Budget as well as in the August 2014 Finance news release as precluding the application of the GAAR to treaty shopping arrangements.
The CRA continues to contemplate the application of the GAAR to transactions undertaken primarily to secure a tax benefit afforded by a tax treaty and, in fact, the GAAR Committee has recently approved the application of the GAAR to certain treaty shopping arrangements.
The GAAR may be contemplated even in circumstances where a non-resident would otherwise satisfy all of the relevant provisions of a treaty, including residency provisions, specific anti-avoidance rules, limitation on benefits provisions, and anti-conduit measures, if any. We would further note that where Canada's competent authority determines that a particular non-resident is entitled to the benefits of a treaty, for example under paragraph (6) of Article XXIX-A of the Canada-U.S. treaty, that determination would not preclude the application of the GAAR to transactions undertaken primarily to secure a tax benefit afforded by the treaty.
Suzanne Saydeh
ATP Division
2015-058155
May 28, 2015