Where dividends paid by a resident corporation resident to a resident personal discretionary trust are deemed pursuant to s. 104(19) to be received by a beneficiary that is resident, but not domiciled in Barbados (“NR-Beneficiary”), would those dividends be subject to a reduced rate of withholding at 15% pursuant to Arts. XXIII(3) and XXX(5) of the Canada-Barbados Treaty?
After noting that NR-Beneficiary was subject to taxation under the Barbados Income Tax Act, 1968 on its “income from sources outside Barbados … only to the extent a benefit is obtained in Barbados from that income in the form, among others, of a remittance of money or an importation of property,” i.e., on a “remittance basis,” the Directorate further noted that although the dividend withholding rate otherwise was reduced to 15% pursuant to Art. XXIII(3) of the Treaty, “Article XXX(5) generally restricts the application of the provisions of the Treaty to income that is taxed in the hands of a person subject to tax on a remittance basis in Barbados.” The Directorate then stated:
If a person who is subject to remittance basis taxation in Barbados files a return of income in Barbados contrary to the application of the law in force in Barbados, it is our view that the income reported on that return … would not be considered “taxed” in Barbados for the purposes of Article XXX(5) such that the benefits of the Treaty would not apply to the Income.
Accordingly, to receive the Treaty-rate reduction on the dividend income, NR-Beneficiary would be required to establish that such income “is taxed in Barbados in conformity with the law in force in that country.”