The two partners of a partnership which has elected to be a domestic corporation for Code purposes are: a corporation which is resident in the U.S. for purposes of the Canada- U.S. Income Tax Convention; and a corporation resident in a non-Treaty country.
CRA indicated that a member of the partnership can access benefits under Article X(6) of the US Treaty ("partnership-level benefits") to the extent that the partnership could have claimed such benefits had the partnership been the entity subject to Canadian branch tax. Although the partnership would not so qualify as a "qualifying person" as defined in Art. XXIX A(2) of the US Treaty due to the absence of share capital for the partnership, "partnership-level benefits" under Art. X(6) may apply to business profits earned by a US-resident partnership through a Canadian permanent establishment in accordance with the "active trade or business" test under Art. XXIX A(3), or, if treaty benefits are granted by the Canadian competent authority, under Article XXIX A(6).
Additionally, a member of the partnership that is itself eligible to claim treaty benefits under Article X(6) may still apply the reduced branch tax rate to its share of the partnership's profits earned through a Canadian permanent establishment.
In the first "partnership-level benefits" situation, partnership profits will not be reduced by partner-level expenses or Canadian income tax liabilities. "Consequently, the member of the partnership may find that its share of the partnership's Article X(6) earnings amount exceeds the amount upon which Part XIV tax is otherwise payable under subsection 219(1)."