Canada: Technical Explanation Clarifies Protocol To Canada-U.S. Tax Treaty, Part One

Last Updated: July 24 2008

On July 10, 2008 the U.S. Treasury Department released the Technical Explanation (the TE) to the September 21, 2007 protocol (the Protocol) to the Canada-U.S. Income Tax Convention (the Treaty) and the Canadian Department of Finance issued a press release indicating its agreement with the TE. Although the TE does not amend the Protocol or the Treaty itself, it is an important interpretive aid that sets out the intentions of Canada and the United States and clarifies several important aspects of the Protocol.

This update summarizes the most significant changes to the Treaty resulting from the Protocol and the main clarifications provided in the TE. Many of these Protocol changes will significantly impact existing cross-border structures and proposed transactions.

The Protocol and two sets of diplomatic notes (Annex A, which details the binding arbitration procedures, and Annex B, which addresses various interpretive issues) are available from the Department of Finance website. The TE is also available from the U.S. Treasury Department's website. Osler has prepared a blacklined document displaying the changes made to the Treaty by the Protocol. It can be obtained from any member of our National Tax Department.

Highlights of the Protocol include:

  • Interest withholding taxes – Protocol eliminates withholding tax on most cross-border interest payments and many guarantee fees (phased in over two years for related party interest);

  • Hybrid entity rules - new rules allow (or deny) treaty benefits for certain amounts derived through or paid by hybrid entities that are treated as fiscally transparent in one country but not the other (such as certain partnerships, U.S. limited liability companies or Canadian unlimited liability companies);

  • Limitation on benefits - a comprehensive limitation on benefits provision applies to both Canada and the United States;

  • Binding arbitration – a new process requires the tax authorities of Canada and the United States to resolve certain issues through "baseball style" binding arbitration;

  • Services permanent establishment – a new rule may deem a permanent establishment to arise if cross-border services are provided over a period that exceeds 183 days;

  • Determination of business profits – new rules affect the manner in which income is attributed to a permanent establishment.

  • Pensions – new rules address pension contributions and accrued pension benefits in cross-border employment situations; and

  • Stock options – new rules apportion the taxation of stock option benefits between Canada and the United States in cross-border situations.

Application of the TE in Canada

While the TE was prepared by the U.S. Treasury Department, the Canadian Department of Finance reviewed and commented on it, and agrees with its contents. The Introduction to the TE notes that, in the view of both Canada and the United States, the TE "accurately reflects the policies behind particular Protocol provisions, as well as understandings reached with respect to the application and interpretation of the Protocol and the Convention." The Canadian government's agreement with the contents of the TE, and its participation in the preparation of the TE, was confirmed in a press release issued by the Department of Finance on July 10, 2008.

Entry into Force of the Protocol

The Protocol will enter into force once Canada and the United States have notified each other that its ratification procedures are complete. Canada ratified the Protocol on December 14, 2007. The U.S. Senate Committee on Foreign Relations reviewed the Protocol on July 10, 2008 and ratification by the United States is expected later in 2008. However, concerns have been expressed to the U.S. Senate Committee regarding certain portions of the Protocol (such as the rule for services permanent establishments and part of the hybrid entity rule). It is possible that these concerns may delay ratification in the United States, or even lead to a further protocol. Some of these concerns were expressed by members of the U.S. Senate Committee and by the staff of the Joint Committee on Taxation (the U.S. Congress Joint Committee), a non-partisan committee of the United States Congress, in its Explanation of the Protocol prepared in connection with the U.S. Senate Committee hearings.

With respect to withholding taxes (other than on interest payments), the Protocol will generally be effective two months after it enters into force. The Protocol will generally be effective for other taxes for tax years that begin in the calendar year after ratification, except that special timing applies to certain provisions as discussed below (such as for withholding tax on interest payments and the hybrid entity rules).

Elimination of Withholding Tax on Interest and Guarantee Fees


Subject to various exceptions, Canada and the United States levy withholding taxes on interest paid to non-residents at a rate of 25% and 30%, respectively. Although Canada and the United States each have important domestic withholding tax exemptions, they are not comprehensive. As of January 1, 2008 Canada's withholding tax exemption generally applies to interest, other than "participating debt interest," paid to arm's length non-residents. The United States has exemptions for bank deposits, short-term original issue discounts and "portfolio interest," but these exceptions do not apply to certain "contingent interest," certain interest paid to a 10% owner of the issuer, interest paid to banks lending in the ordinary course of their business, or interest paid to certain foreign corporations related to the borrower.

Once ratified, the Protocol will provide incremental interest withholding tax relief to Canadian and U.S. persons. The Protocol provides that, subject to the potential application of the limitation on benefits provision, non-resident withholding tax on interest (other than certain participating interest in Canada or contingent interest in the United States) that is paid to an unrelated resident of the other country will generally be eliminated. Although this rule is slightly different from the domestic Canadian exemption, it will likely have little practical effect on Canadian withholding taxes (but should eliminate U.S. withholding taxes in many circumstances where the portfolio interest exemption does not otherwise apply).

  • The TE provides that, for U.S. purposes, "related" has its meaning under section 482 of the Internal Revenue Code and, for Canadian purposes, has its meaning under section 251 of the Income Tax Act.

Of greater importance is the relief afforded for interest payments to related persons. Under the Protocol, withholding tax on interest paid by a resident of Canada or the United States to a related resident of the other country will be reduced to 7% during the first calendar year in which the Protocol becomes effective. Such tax will be reduced to 4% for the immediately following calendar year and then eliminated for subsequent years.

  • The TE clarifies that the elimination or reduction of withholding taxes on interest under the Protocol applies retroactively to January 1 of the calendar year in which the Protocol comes into force. If the Protocol is ratified in 2008, the 0% rate for payments to unrelated persons and the reduced 7% rate for payments to related persons will apply as of January 1, 2008. For payments to related persons, the rate would then be reduced to 4% as of January 1, 2009 and to 0% as of January 1, 2010.

The Protocol's interest withholding tax exemption is subject to certain exceptions. In the case of interest arising in Canada and paid to a beneficial owner that is a U.S. resident, certain participating interest (including amounts determined by reference to income, profits or cash flow of the debtor or a related person, and dividends or similar distributions paid by the debtor) will be effectively treated as dividends and subject to withholding tax not exceeding the 15% rate generally applicable under the Treaty to dividend payments. For payments arising in the United States and paid to a beneficial owner that is a Canadian resident, the same treatment will apply to interest that is "contingent interest" of a type that does not qualify as portfolio interest under U.S. law.

  • With respect to interest arising in the United States, the TE provides that "contingent interest" is defined by reference to section 871(h)(4) of the Internal Revenue Code, including the exceptions therein.

Finally, the reduced interest withholding tax rates do not apply to certain interest that exceeds an arm's-length rate (i.e., interest paid to a person with a special relationship with the borrower in excess of what would have otherwise been paid in the absence of that special relationship).

Guarantee Fees

Under the Protocol, guarantee fees are taxable only in the recipient's country of residence, unless such fees are attributable to a permanent establishment in the other country, in which case Article VII (Business Profits) applies. This provision will apply to guarantee fees paid or credited after the first day of the second month beginning after the Protocol enters into force.

  • The U.S. Congress Joint Committee has indicated that the exemption for guarantee fees was intended to prevent the United States from taxing such fees under the "Other Income" article. Canada generally exempts such fees from withholding tax under the Income Tax Act by treating them as interest, but only to the extent that they are paid to an arm's-length non-resident. The TE does not address whether Canada will treat guarantee fees as interest as required under the Income Tax Act, and thus continue to levy withholding tax on related party guarantee fees during the phase-in of the interest withholding tax exemption. However, comments by Department of Finance officials have suggested that the "Other Income" article should generally apply to exempt guarantee fees paid to related persons from Canadian withholding tax without regard to the phase-in of the exemption under the Interest article.

  • The TE notes that the reference to Article VII was inserted at the request of the United States in respect of fees paid to financial services entities in the ordinary course of business. The TE suggests that the provision of guarantees with respect to the debt of related parties would ordinarily not generate business profits and, in most cases, would be covered by the "Other Income" article.

Hybrid Entities - Accommodating LLCs and Other Fiscally Transparent Entities

The Protocol clarifies that income derived by a fiscally transparent entity may generally be eligible for treaty benefits to the extent that its members are resident in Canada or the United States. This provides relief from the long-standing position of the Canada Revenue Agency (CRA) (as yet untested in court) that a U.S. limited liability company (LLC) that is treated as fiscally transparent for U.S. federal income tax purposes is not a resident of the United States for purposes of the Treaty and, at the same time, is recognized as an entity separate from its members from Canada's perspective. Under this current position, neither the LLC nor its members would be eligible for treaty benefits in respect of amounts derived by the LLC.

In new Article IV(6), the Protocol provides that an amount of income, profit or gain is considered to be derived by a person who is a resident of Canada or the United States if (a) the person is considered under the tax law of the resident country to have derived the amount through an entity that is not a resident of the other country, and (b) by reason of such entity being treated as fiscally transparent under the tax law of the resident country, the tax treatment of the amount is the same as if it had been derived directly by that person.

  • The TE confirms that fiscally transparent entities (for U.S. tax purposes) include partnerships, common investment trusts, grantor trusts, and limited liability companies or similar entities that are treated as partnerships or disregarded as separate entities for U.S. tax purposes. For Canadian tax purposes, partnerships and "bare" trusts are considered fiscally transparent entities. (The TE does not mention the treatment of Canadian grantor trusts under subsection 75(2) of the Income Tax Act). Entities that are subject to tax, but with respect to which tax may be relieved under an integration system, are not considered fiscally transparent entities.

  • The TE indicates that United States S corporations will generally be treated as fiscally transparent for U.S. tax purposes, but not for Canadian tax purposes. Canada will continue to view an S corporation as capable of being a resident of the United States, in which case the S corporation itself, rather than its shareholders, would be eligible for treaty benefits.

  • The TE confirms that a U.S.-resident member of a fiscally transparent LLC may claim treaty benefits with respect to its share of (a) gains realized by the LLC on the disposition of taxable Canadian property, (b) interest, dividends or royalties received by the LLC from a Canadian resident, and (c) Canadian business profits or other income of the LLC. However, Canada will require the LLC itself, and not its members, to file any required Canadian tax returns in respect of such income. Canada will also subject the LLC itself to tax in respect of any amounts not allocable to a U.S.-resident member eligible for treaty benefits (or may apply a 25% withholding tax rate on interest, dividends or royalties attributable to non-U.S.-resident members.)

  • Where a U.S. LLC carries on business in Canada, the TE provides that Canada will look to whether the LLC itself has a permanent establishment in Canada. If it does not, then only the portion of the LLC's income that belongs to its U.S.-resident members would be exempt from Canadian tax under the Treaty. If the LLC does have a permanent establishment in Canada, then Canada will tax the LLC, rather than its members, on its business profits. In the inverse situation, the United States will look to the activities of both the fiscally transparent entity and its members in determining whether the entity has a permanent establishment.

  • The TE suggests that Canada will apply criteria comparable to those applied by the United States in determining whether an amount derived through a fiscally transparent entity has received the "same treatment" as if the amount had been derived directly. The United States requires that the amount must be recognized by a member of a fiscally transparent entity on a current basis and must retain the same character and source to satisfy the same treatment requirement.

  • Fiscally transparent entities are not restricted to U.S. or Canadian entities. The TE confirms that the new Treaty provision accommodating hybrid entities could override a second treaty. Consequently, U.S. interest holders of a third-jurisdiction entity that is disregarded for U.S. tax purposes could obtain benefits under the Treaty.

Although the new Treaty rule provides that an amount of income, profit or gain shall be considered to be derived by a person who is a resident of a Contracting State where certain conditions are met, it does not deem such person to be the beneficial owner of the income. This is of particular importance in the case of dividends, royalties and interest where a reduction in the withholding tax rate is dependant on the payee being the beneficial owner of such income. Despite this omission, the new hybrid entity rule appears to intend for the person deemed to derive the income to be entitled to Treaty benefits.

  • The TE provides that "beneficial owner" is defined under the domestic law of the country imposing the tax and refers to the fact that a nominee or agent is not a beneficial owner. This interpretation in the TE (with which Canada agrees) suggests that an international fiscal meaning of "beneficial owner" should not be adopted. In the recent Tax Court of Canada case of Prévost Car Inc. (currently under appeal), the CRA had attempted to interpret "beneficial owner" as having an international fiscal meaning in the context of the Canada-Netherlands Tax Treaty.

  • The TE contemplates that there may be a bifurcation between the beneficial owner and the person considered to derive the income. The TE provides that in the case of income, profits or gains derived through a fiscally transparent entity, the tax laws of the residence country and the rules in new Article IV(6) are first applied to determine whether an owner of the entity derives the income, profits or gains. The source country rules of beneficial ownership are then applied to determine whether that person is the beneficial owner of such amounts, rather than an agent or nominee of another person. In the case of Canada, the TE specifies that Treaty benefits will be available to otherwise qualifying members of a fiscally transparent entity if such fiscally transparent entity is considered to be the beneficial owner of the income under Canadian law. However, it is not entirely clear how the limitation on benefits rules will apply where a fiscally transparent entity is considered the beneficial owner of income derived by its members.

  • The TE does not confirm that the tax authorities will look through multi-tiers of fiscally transparent entities in applying the new hybrid entity rule. However, the CRA has indicated that it will be adopting such an approach.

Dividends earned through Fiscally Transparent Entities

The Protocol clarifies the treatment of dividends (but not other income) earned by investors through LLCs and other fiscally transparent entities. The Treaty reduces the withholding tax rate from 15% to 5% on dividends paid to U.S. residents where the beneficial owner of the dividends is a company which "owns" at least 10% of the voting stock of the company paying the dividends. The Protocol amends this rule to provide that, for purposes of determining whether the 10% ownership threshold is met, a company that is a resident of Canada or the United States is considered to own the voting stock owned by an entity that is considered fiscally transparent under the laws of the residence country and that is not a resident of the source country, in proportion to the company's ownership interest in that entity.

  • Neither the Protocol nor the TE addresses the allocation of voting stock where the capital of the entity is composed of voting shares and various classes of preferred shares. Furthermore, the concept of "in proportion to the company's ownership interest" is not found in U.S. or Canadian tax principles. Moreover, the TE does not provide any guidance as to whether an approach similar to the surplus entitlement percentage test under the Canadian foreign affiliate regime could be adopted.

Hybrid Entities—Treaty Benefit Denial Rules

The Protocol denies treaty benefits with respect to the use of two categories of hybrid entities that are disregarded in one country and not the other. Under each of these new rules, the result is that the recipient of payments will be deemed not to be a resident of Canada or the United States and thus will not be entitled to the benefits of the Treaty.

The first rule (Article IV(7)(a)) applies to payments to, or amounts derived by, a resident of Canada or the United States through a hybrid entity that is recognized by the residence country but that is disregarded by the other country. This rule appears to apply to common "reverse hybrid" arrangements used by U.S. residents in Canada. The TE provides examples of where this rule applies to deny Treaty benefits, such as where a Canadian company uses a fiscally transparent LLC to derive U.S.-source income. This rule is similar to, but broader than, the rules in section 894(c) of the Internal Revenue Code.

The second rule (Article IV(7)(b)) applies to payments to, or amounts derived by, a resident of Canada or the United States from a hybrid entity that is disregarded by the residence country but that is recognized by the other country. The TE also provides examples where this rule applies.

The text of the second rule is broadly drafted and, hence, applies to both deductible and non-deductible payments. It consequently applies to non-deductible amounts such as dividends or interest that would not be deductible under a thin capitalization rule. At the 2007 Canadian Tax Foundation Conference, the Department of Finance recognized that the scope of the second rule's application possibly was broader than initially intended, a concern shared by the U.S. Congress Joint Committee.

  • The TE does not narrow the scope of this denial rule and, thus, it appears that the use of Canadian unlimited liability companies (ULCs) will negatively be impacted. This is an unfortunate outcome since, as rightly pointed out by the U.S. Congress Joint Committee, ULCs have been used in many legitimate commercial transactions, allowing U.S. investors to operate in branch form for U.S. tax purposes, to better manage Canadian foreign taxes, and to increase the Canadian tax basis in Canadian assets acquired through a purchase of the stock of a Canadian company.

As a result of these changes, any cross-border arrangements using hybrid entities should be reviewed. Perhaps as a concession to the fact that these changes will require many taxpayers on both sides of the border to review (and perhaps restructure) current arrangements, the new hybrid entity treaty benefit denial rules are not effective until the first day of the third calendar year that ends after the Protocol enters into force. Assuming the Protocol enters into force in 2008, this change will be effective January 1, 2010.

Limitation on Benefits

A significant change in the Protocol is the introduction of Canada's first comprehensive limitation on benefits (LOB) provision, which is intended to address the problem of "treaty shopping" by ensuring that treaty benefits are only available to residents of Canada or the United States that also satisfy certain other tests. This is a marked departure from Canada's existing treaty policy. Until now, Canada has generally relied on its ability to prevent perceived misuses of tax treaties through its domestic general anti-avoidance rule (GAAR), which was retroactively amended in 2005 to apply explicitly to tax treaties. Canada has also recently argued that tax treaties contain an implicit anti-abuse rule and that the use of the term "beneficial owner" in most dividend, interest and royalty articles may be interpreted as a broad anti-treaty shopping provision. However, in its recent decision in MIL Investments S.A., the Canadian Federal Court of Appeal did not apply GAAR or an implicit anti-abuse rule in the context of a perceived treaty shopping case. The Crown did not seek leave to appeal that case. This outcome is notable in light of the combination of specific and general anti-abuse approaches that are adopted in the Protocol. In its recent decision in Prévost Car Inc., the Tax Court of Canada held that a Dutch holding company was the beneficial owner of dividends paid by its Canadian subsidiary, despite limited activities in the Netherlands and substantial influence being exercised by the holding company's shareholders. The Crown has appealed that decision to the Federal Court of Appeal.

Canada may no longer be satisfied with relying on existing anti-abuse rules, at least in the context of this Treaty (perhaps due to the new interest withholding tax exemption) and could potentially seek to add comprehensive LOB provisions to other treaties in the future.

In addition to extending the application of the LOB provision to Canada, the Protocol also updates the rule to more closely reflect current U.S. treaty policy. To qualify for treaty benefits, a person must be a resident of Canada or the United States under Article IV. The person must generally also meet one of the following additional criteria: the person must be a "qualifying person," the active business/substantial activity test must be satisfied, or the derivative benefits test must be satisfied. The LOB provision of the Protocol also permits a person not otherwise qualifying for Treaty benefits to apply for competent authority relief where the person was not created to obtain Treaty benefits, or where it would not be appropriate to deny Treaty benefits.

Qualifying Persons

In general, the new LOB provision limits Treaty benefits to "qualifying persons" that are otherwise resident including: (a) natural persons, (b) governments and their agencies, (c) companies or trusts whose principal class of shares or units (and certain "tracking" shares or units) is "primarily and regularly" traded on a recognized stock exchange, (d) certain companies or trusts that are controlled by other qualifying persons, subject to a potential limitation on expenses paid to non-qualifying persons (base erosion rule), and (e) estates and certain pension trusts, non-profits and tax exempts.

  • The new hybrid entity rules may result in a difference between the person that is treated as "deriving" income under the principles of Article IV and the person that is treated as the "beneficial owner" of the income in accordance with the laws of the source country. The TE suggests that the proper methodology is to first identify the person who derives the income under Article IV and then to apply the LOB provision to that person. While this guidance is helpful, it does not fully address situations where the source country regards the beneficial owner to be other than the person that derives the income. In particular, the technical explanation to the U.S. Model Treaty suggests that the LOB provision is to be applied to the person that is identified in accordance with the laws of the source country as the beneficial owner of the income. Taxpayers that engage in transactions or structures involving hybrid entities may encounter some uncertainty regarding their eligibility for treaty benefits (including the manner of establishing their entitlement to such benefits to the satisfaction of the source country).

  • Publicly-traded entities whose "principal class" of shares (and any disproportionate class of shares or units) or units is "primarily and regularly" traded on a "recognized stock exchange" are qualified persons. The TE clarifies the meaning of these phrases:

    • "Principal class of shares or units" means the ordinary or common shares of a company representing the majority of the voting power and value of the company. If no single class fits this description, then "principal class of shares" means those classes that in the aggregate represent a majority of the voting power and value of the company. However, a company whose principal class of shares is regularly traded on a recognized stock exchange will not qualify for benefits if it has a disproportionate class of shares (that is, a class of shares that disproportionately tracks the company's earnings generated in the other country, such as "tracking stock") not regularly traded on a recognized stock exchange.

    • "Primarily traded" has the meaning set out in the relevant treaty country, usually the source country. For the United States, this is defined in Treas. Reg. section 1.884-5(d)(3), which states that as long as more shares of the principal class of shares are traded on a recognized stock exchange than on other securities markets during the year, the shares are primarily traded on a recognized stock exchange.

    • "Regularly traded" also has the meaning it has under the laws of the relevant treaty country, usually the source country. For the United States, Treas. Reg. Section 1.884-5(d)(4)(i)(B) provides that shares are regularly traded if:

      • trades in the class of shares are made in more than de minimis quantities on at least 60 days in the year, and

      • the aggregate number of shares in the class traded in the year is at least 10% of the average number of outstanding shares in the year.

Trading on one or more recognized stock exchanges (in Canada or the United States, or both) may be aggregated for this requirement.

  • Unless Canada adopts its own definitions, the TE contemplates that the U.S. interpretation of "primarily traded" and "regularly traded" applies for purposes of Canadian taxation, with such modifications as may be necessary.

  • "Recognized stock exchange" means the NASDAQ System, any stock exchange registered as a national securities exchange with the U.S. Securities Exchange Commission, Canadian exchanges that are "prescribed stock exchanges" or "designated stock exchanges," and any other exchange agreed on by the competent authorities. The TE states that the recognized Canadian exchanges at the time the Protocol was signed are the Montreal Stock Exchange, the Toronto Stock Exchange, and Tiers 1 and 2 of the TSX Venture Exchange.

Active Business/Substantial Activity Test

The Protocol also extends Treaty benefits to residents who are not otherwise qualifying persons but who are engaged in the active conduct of a trade or business in the jurisdiction where they are resident, but only for income "derived in connection with or incidental to that trade or business" and only if the trade or business is "substantial" in relation to activities in the other country. Certain investment activities do not constitute a trade or business for this purpose. U.S. entities that are controlled by persons outside of Canada or the United States and that are not publicly listed will need to become very familiar with this clause and the "derivative benefits" clause described below.

  • The TE clarifies that if the investment activity is carried out with customers in the ordinary course of the business of a bank, insurance company, registered securities dealer or deposit taking financial institution, the activity will be considered "active."

  • The TE indicates that "derived in connection with an active trade or business" includes income-generating activities that are "upstream," "downstream" or parallel to that conducted in the other country. For example, a Canadian manufacturer that sells its final product in the United States, purchases inputs to its manufacturing process in the United States, or manufactures and sells in the United States similar products to those being manufactured and sold in Canada would, in each case, earn income in the United States derived in connection with its trade or business in Canada.

  • The active business test requires a determination of the connection between income and an active trade or business. The "in connection with" test is conceivably very broad. Canadian taxpayers and practitioners will be reminded of tests included in the Canadian foreign affiliate rules requiring a determination of whether income is incidental or pertains to an active business of a foreign affiliate, or is derived in what amounts to an integrated undertaking of more than one foreign affiliate in which a Canadian taxpayer has substantial interests. In the latter case, the degree of required integration is sometimes controversial. Interestingly, the TE offers a seemingly generous vertical and horizontal integration approach to allow income to be coloured as deriving from an active business.

  • The TE also discusses the meaning of "incidental," stating that income from a short-term investment of working capital made by a Canadian company in U.S. securities would be considered incidental. The TE further provides that income is treated as derived in connection with or incidental to a trade or business if earned directly or indirectly through one or more persons resident in Canada or the United States, and that the test will be satisfied even if, for example, a U.S. holding company is interposed between a Canadian-resident parent and its U.S.-resident operating subsidiary.

  • The "substantiality" test does not require that the trade or business in the residence country be as large as the income-generating activity in the source country. The trade or business cannot, however, represent only a small percentage of the size of the activity in the other country. The TE provides an example of the type of structure this requirement aims to prevent. In the example, a third-country resident wishes to acquire a U.S. manufacturing company. Since the third country has no treaty with the United States, high withholding rates would apply to any dividends paid by the U.S. manufacturing company. Absent the substantiality rule, the third-country resident could qualify under this rule by acquiring the U.S. target through a Canadian acquisition company and then arranging for the acquisition company to have an outlet in Canada which sells a very small amount of the manufactured product.

This update is not a comprehensive summary of all of the changes to the Treaty enacted by the Protocol. Changes not addressed in this update include those relating to exempt organizations, the exchange of information, the emigration of individuals and the residence of continued corporations, among others. If you have any questions or require additional analysis of the Protocol, the Treaty, and the Technical Explanation, please contact any member of our National Tax Department

To read Part Two of this article please click onthe Next Page link below

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.

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Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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