On April 8, 2010, the Tax Court of Canada held that a U.S. limited liability company (LLC) was "liable to tax" in, and therefore a resident of, the United States for purposes of the Canada-United States Income Tax Convention (the Treaty). The case overturned the long-established position of the Canada Revenue Agency (CRA) that LLCs that are fiscally transparent for U.S. tax purposes cannot be U.S. residents for purposes of the Treaty. The Tax Court's decision is now final, as the Crown did not appeal the decision to the Federal Court of Appeal. The taxpayer was represented by Osler's Al Meghji, Patrick Marley and Pooja Samtani.
While this decision is especially relevant for periods prior to the introduction of the Fifth Protocol, it will also assist with interpreting the Treaty (and other tax treaties) in later periods. For a discussion of the Tax Court's decision see our Osler Update of April 15, 2010.
LLC's that have previously paid Canadian tax without claiming benefits under the Treaty should consider whether it may now be possible to claim a refund. Please contact any member of the Osler Tax Group to assist in determining whether a refund may be available to a particular LLC, or to discuss the implications of the decision in interpreting Canada's tax treaties generally.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.