In the March 2013 Canadian federal budget, the Minister of
Finance announced an intention to consult on possible measures to
"protect the integrity of Canada's tax treaties while
preserving a business tax environment that is conducive to foreign
investment". This protection was seen as necessary in response
to the practice of "treaty shopping".
On August 12, 2013, the Department of Finance released a
consultation paper on treaty shopping. The government has invited
comments by December 13, 2013.
The consultation paper defines "treaty shopping"
generally as "a situation under which a person who is not
entitled to the benefits of a tax treaty uses an intermediary
entity that is entitled to such benefits in order to indirectly
obtain those benefits."
The paper outlines the government's view on treaty shopping,
its limited success in challenging what it considers to be abusive
transactions in the courts and statistics it points to as evidence
of treaty shopping with respect to Canada. The paper then discusses
the relative merits of different possible approaches, including
either a domestic tax rule or a treaty-based rule, and either a
general rule or one or more specific rules. The paper invites
comment with reference to seven general questions dealing with the
While it is too early to anticipate precisely which approach the
government is likely to pursue to combat its perceived treaty abuse
concerns, it seems clear that the government intends to introduce
some kind of new measures in this regard.
Please click here for a link to the Department of
Finance's News Release and Consultation Paper.
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