The Canadian and US business and tax communities welcomed the signing last September of a long awaited Protocol to the tax treaty between the two countries (the "Treaty"). The Protocol addresses a wide range of cross border tax matters, including issues affecting financing, intercompany transactions and entities held by U.S. or Canadian investors which are treated as "fiscally transparent" in one but not both jurisdictions (a "hybrid entity").
As well as providing much-welcomed relief, the Protocol raises some new tax barriers - involving cross-border services, hybrid entities, and certain other matters – and its language and approach creates significant uncertainty in certain areas.
The U.S. Treasury Department's "Technical Explanation" of the Protocol released yesterday in conjunction with Senate hearings on the Protocol clarifies at least some of the outstanding issues....
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