Protocol Amending the Convention Between Canada and the United States of America


This electronic version of the Canada-United States Protocol signed on September 21, 2007, is provided for convenience of reference only and has no official sanction.


CANADA and the UNITED STATES OF AMERICA, hereinafter referred to as the "Contracting States",

DESIRING to conclude a Protocol amending the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital done at Washington on 26 September 1980, as amended by the Protocols done on 14 June 1983, 28 March 1984, 17 March 1995 and 29 July 1997 (hereinafter referred to as the "Convention"),

HAVE AGREED as follows:

Paragraph 1 of Article III (General Definitions) of the Convention shall be amended by deleting the word "and" at the end of subparagraph (i), by replacing the period at the end of subparagraph (j) with "; and", and by adding the following subparagraph:
1. Paragraph 3 of Article IV (Residence) of the Convention shall be deleted and replaced by the following:
2. Article IV (Residence) of the Convention shall be amended by adding the following after paragraph 5:

1. The first sentence of paragraph 6 of Article V (Permanent Establishment) of the Convention shall be amended by deleting the word "and" preceding the first reference to paragraph 5, inserting a comma, and adding the words "and 9" following that reference to paragraph 5.

2. Paragraph 9 of Article V (Permanent Establishment) of the Convention shall be deleted and replaced by the following two paragraphs:
Paragraph 2 of Article VII (Business Profits) of the Convention shall be deleted and replaced by the following:
1. Subparagraph 2(a) of Article X (Dividends) of the Convention shall be deleted and replaced by the following:
2. Paragraph 3 of Article X (Dividends) of the Convention shall be deleted and replaced by the following:
3. Paragraph 4 of Article X (Dividends) of the Convention shall be deleted and replaced by the following:

4. Paragraph 5 of Article X (Dividends) of the Convention shall be amended by deleting the words "or a fixed base" following the words "effectively connected with a permanent establishment".

5. Subparagraph 7(c) of Article X (Dividends) of the Convention shall be deleted and replaced by the following:

Otherwise, the rate of tax applicable under the domestic law of the United States shall apply. Where an estate or testamentary trust acquired its interest in a REIT as a consequence of an individual's death, for purposes of this subparagraph the estate or trust shall for the five-year period following the death be deemed with respect to that interest to be an individual.

Article XI (Interest) of the Convention shall be deleted and replaced by the following:

1. Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State may be taxed only in that other State.

2. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums or prizes attaching to such securities, bonds or debentures, as well as income assimilated to income from money lent by the taxation laws of the Contracting State in which the income arises. However, the term "interest" does not include income dealt with in Article X (Dividends).

3. The provisions of paragraph 1 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on, or has carried on, business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article VII (Business Profits) shall apply.

4. For the purposes of this Article, interest shall be deemed to arise in a Contracting State when the payer is that State itself, or a political subdivision, local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a State other than that of which he is a resident a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated and not in the State of which the payer is a resident.

5. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debtclaim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

6. Notwithstanding the provisions of paragraph 1:

7. Where a resident of a Contracting State pays interest to a person other than a resident of the other Contracting State, that other State may not impose any tax on such interest except insofar as it arises in that other State or insofar as the debt-claim in respect of which the interest is paid is effectively connected with a permanent establishment situated in that other State.

1. Paragraph 5 of Article XII (Royalties) of the Convention shall be deleted and replaced by the following:
2. Subparagraph 6(a) of Article XII (Royalties) of the Convention shall be deleted and replaced by the following:

3. Paragraph 8 of Article XII (Royalties) of the Convention shall be amended by deleting the words "or a fixed base" following the words "effectively connected with a permanent establishment".

1. Paragraph 2 of Article XIII (Gains) of the Convention shall be deleted and replaced by the following:
2. Paragraph 5 of Article XIII (Gains) of the Convention shall be deleted and replaced by the following:
3. Paragraph 7 of Article XIII (Gains) of the Convention shall be deleted and replaced by the following:

4. Subparagraph 9(c) of Article XIII (Gains) of the Convention shall be amended by deleting the words "or pertained to a fixed base" following the words "permanent establishment".

Article XIV (Independent Personal Services) of the Convention shall be deleted and the succeeding Articles shall not be renumbered.

1. The title of Article XV (Dependent Personal Services) of the Convention shall be deleted and replaced by "Income from Employment".

2. Paragraphs 1 and 2 of renamed Article XV (Income from Employment) of the Convention shall be deleted and replaced by the following:

1. Paragraph 1 of Article XVI (Artistes and Athletes) shall be amended by deleting the words "XIV (Independent Personal Services)" following the words "Notwithstanding the provisions of Articles" and replacing them with the words "VII (Business Profits)" and by deleting the words "XV (Dependent Personal Services)" and replacing them with the words "XV (Income from Employment)".

2. Paragraph 2 of Article XVI (Artistes and Athletes) shall be amended by deleting the words "XIV (Independent Personal Services)" following the words "notwithstanding the provisions of Articles VII (Business Profits)" and by deleting the words "XV (Dependent Personal Services)" and replacing them with the words "XV (Income from Employment)".

3. Paragraph 4 of Article XVI (Artistes and Athletes) shall be amended by deleting the words "XIV (Independent Personal Services)" following the words "Notwithstanding the provisions of Articles" and replacing them with the words "VII (Business Profits)" and by deleting the words "(Dependent Personal Services)" in both places they appear in the paragraph and replacing them with the words "(Income from Employment)".

Article XVII (Withholding of Taxes in Respect of Personal Services) of the Convention shall be deleted and the succeeding Articles shall not be renumbered.

1. Paragraphs 3 and 4 of Article XVIII (Pensions and Annuities) of the Convention shall be deleted and replaced by the following:
2.Paragraph 7 of Article XVIII (Pensions and Annuities) of the Convention shall be deleted and replaced by the following:
3. Article XVIII (Pensions and Annuities) of the Convention shall be amended by adding the following paragraphs:

Article XIX (Government Service) of the Convention shall be amended by deleting the words "XIV (Independent Personal Services)" and replacing them with the words "VII (Business Profits)" and by deleting the words "XV (Dependent Personal Services) and replacing them with the words "XV (Income from Employment)".

Article XX (Students) of the Convention shall be deleted and replaced by the following:

Payments received by an individual who is a student, apprentice, or business trainee, and is, or was immediately before visiting a Contracting State, a resident of the other Contracting State, and who is present in the first-mentioned State for the purpose of the individual's full-time education or full-time training, shall not be taxed in that State, provided that such payments arise outside that State, and are for the purpose of the maintenance, education or training of the individual. The provisions of this Article shall apply to an apprentice or business trainee only for a period of time not exceeding one year from the date the individual first arrives in the first-mentioned State for the purpose of the individual's training.

1. Paragraphs 4, 5 and 6 of Article XXI (Exempt Organizations) of the Convention shall be renumbered as paragraphs 5, 6 and 7 respectively.

2. Paragraphs 1 through 3 of Article XXI (Exempt Organizations) of the Convention shall be deleted and replaced by the following four paragraphs:
Article XXII (Other Income) of the Convention shall be amended by adding the following paragraph:

Paragraph 2 of Article XXIII (Capital) of the Convention shall be amended by deleting the phrase ", or by personal property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services".

Subparagraph 2(b) of Article XXIV (Elimination of Double Taxation) of the Convention shall be deleted and replaced with the following:
1. Paragraph 1 of Article XXV (Non-Discrimination) of the Convention shall be deleted and replaced by the following:

2. Paragraph 2 of Article XXV (Non-Discrimination) of the Convention shall be deleted, and paragraphs 3 to 10 of Article XXV shall be renumbered accordingly.

3. Renumbered paragraph 3 of Article XXV (Non-Discrimination) of the Convention shall be amended by deleting the words "Article XV (Dependent Personal Services)" and replacing them with the words "Article XV (Income from Employment)".

1. Paragraph 6 of Article XXVI (Mutual Agreement Procedure) of the Convention shall be deleted and replaced by the following:
1. Subparagraph 8(a) of Article XXVI A (Assistance in Collection) of the Convention shall be deleted and replaced by the following:
2. Paragraph 9 of Article XXVI A (Assistance in Collection) of the Convention shall be deleted and replaced by the following:

Article XXVII (Exchange of Information) of the Convention shall be deleted and replaced by the following:

1. Paragraph 2 of Article XXIX (Miscellaneous Rules) of the Convention shall be deleted and replaced by the following:
2. Subparagraph 3(a) of Article XXIX (Miscellaneous Rules) shall be deleted and replaced by the following:

Article XXIX A (Limitation on Benefits) of the Convention shall be deleted and replaced by the following:

1. For the purposes of the application of this Convention by a Contracting State,
2. For the purposes of this Article, a qualifying person is a resident of a Contracting State that is:

3. Where a person is a resident of a Contracting State and is not a qualifying person, and that person, or a person related thereto, is engaged in the active conduct of a trade or business in that State (other than the business of making or managing investments, unless those activities are carried on with customers in the ordinary course of business by a bank, an insurance company, a registered securities dealer or a deposit-taking financial institution), the benefits of this Convention shall apply to that resident person with respect to income derived from the other Contracting State in connection with or incidental to that trade or business (including any such income derived directly or indirectly by that resident person through one or more other persons that are residents of that other State), but only if that trade or business is substantial in relation to the activity carried on in that other State giving rise to the income in respect of which benefits provided under this Convention by that other State are claimed.

4. A company that is a resident of a Contracting State shall also be entitled to the benefits of Articles X (Dividends), XI (Interest) and XII (Royalties) if:
5. For the purposes of this Article,
6. Where a person that is a resident of a Contracting State is not entitled under the preceding provisions of this Article to the benefits provided under this Convention by the other Contracting State, the competent authority of that other State shall, upon that person's request, determine on the basis of all factors including the history, structure, ownership and operations of that person whether:

The person shall be granted the benefits of this Convention by that other State where the competent authority determines that subparagraph (a) or (b) applies.

7. It is understood that this Article shall not be construed as restricting in any manner the right of a Contracting State to deny benefits under this Convention where it can reasonably be concluded that to do otherwise would result in an abuse of the provisions of this Convention.

1. Paragraph 1 of Article XXIX B (Taxes Imposed by Reason of Death) of the Convention shall be deleted and replaced by the following:
2. Paragraph 5 of Article XXIX B (Taxes Imposed by Reason of Death) of the Convention shall be deleted and replaced by the following:

1. This Protocol shall be subject to ratification in accordance with the applicable procedures in the United States and Canada. The Contracting States shall notify each other in writing, through diplomatic channels, when their respective applicable procedures have been satisfied.

2. This Protocol shall enter into force on the date of the later of the notifications referred to in paragraph 1, or January 1, 2008, whichever is later. The provisions of this Protocol shall have effect:
3. Notwithstanding paragraph 2,

IN WITNESS WHEREOF the undersigned, being duly authorized thereto by their respective Governments, have signed this Protocol.

DONE in duplicate at Chelsea this twenty-first day of September 2007 in the English and French languages, each text being equally authentic.

Jim Flaherty

FOR THE GOVERNMENT
OF CANADA

Henry M. Paulson, Jr.

FOR THE GOVERNMENT
OF THE UNITED STATES
OF AMERICA









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