Ottawa, September 21, 2007
2007-070
Related documents:
Backgrounder - The Fifth Protocol to the
Canada-United States Income Tax Convention
Protocol Amending the Convention Between Canada and the United States
of America With Respect to Taxes on Income and on Capital (September
21, 2007)
The Honourable Jim Flaherty, Minister of Finance, today signed an
important tax agreement with Henry M. Paulson, Jr., U.S. Secretary of the
Treasury, concluding nearly 10 years of negotiations.
"We are modernizing a long-standing treaty for the betterment of
individuals and businesses on both sides of the border, including
manufacturers," said Minister Flaherty. "Today we have signed an
agreement that will stimulate further trade and investment and make our
tax systems more efficient."
The fifth update of the Canada-U.S. Tax Treaty:
eliminates withholding taxes on cross-border interest payments;
extends treaty benefits to limited liability companies;
allows taxpayers to require that certain key double tax issues, such
as transfer pricing, be settled through arbitration;
ensures that there is no double taxation on emigrants' gains;
gives mutual tax recognition of pension contributions; and
clarifies how stock options are taxed.
The agreement signed today is a set of changes to the existing
Canada-United States Income Tax Convention, one of over 85 bilateral tax
treaties that Canada has with other countries. First signed in 1980, the
Convention has been updated four times in the past through agreements
known as Protocols.
Minister Flaherty and Secretary Paulson signed the Protocol at Willson
House, a 100year-old heritage property overlooking Quebec's Meech Lake.
After the signing ceremony the Secretary and the Minister spoke briefly to
reporters, noting that the Protocol reflects the strength and depth of the
Canada-United States partnership.
"With the signing of this document, we have concluded nearly a decade
of negotiations and strengthened the bonds of economic co-operation
between our two countries," said Minister Flaherty. "In this highly
competitive global economy, we need to continually explore ways to grow,
expand and compete. Further improving and refining our relationship with
our friends and neighbours to the south is essential."
"After nearly 10 years of negotiations, we are delighted that the
government has signed an updated Canada-U.S. Tax Treaty," said Perrin
Beatty, President and Chief Executive Officer of the Canadian Chamber of
Commerce. "The economic benefits to Canada stemming from the elimination
of the withholding tax on interest paid are tremendous and will result in
a substantial increase in capital and foreign direct investments in
Canada."
"This is good for business, consumers and the Canadian economy,"
said Nancy Hughes Anthony, President and Chief Executive Officer of the
Canadian Bankers Association. "The elimination of this tax will result
in increased investment, reduced cost of capital, and more efficient North
American capital markets. It is the right move."
"Getting the Canada-U.S. Tax Treaty signed is certainly good news for
Canada, and especially for venture capital markets, the seedbed of
innovation," said Finn Poschmann, Director of Research with the C.D.
Howe Institute. "And our research suggests that the bilateral
elimination of withholding taxes will substantially improve the efficiency
of capital markets, attract foreign direct investment to the country, and
help Canadians penetrate the North American market on a more competitive
basis."
This agreement must now be ratified in the House of Commons in Canada
and in the United States Senate. Minister Flaherty is encouraging
legislators of all political stripes to lend their support and pass the
Protocol quickly.
Two diplomatic notes setting out more technical aspects of the
agreement were also exchanged today. The Protocol and the diplomatic notes
are attached.
Also attached is a backgrounder that provides additional information on
the Canada-United States Income Tax Convention and today's agreement.
The full text of the Protocol can be viewed on the Department of Finance
website at www.fin.gc.ca.
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For further information, media may contact:
Chisholm Pothier
Press Secretary
Office of the Minister of Finance
613-996-7861
David Gamble
Media Relations
Department of Finance
613-996-8080
