Published by the Tax Group
McCarthy Tétrault FRANÇAIS VOL.4,
ISSUE 1
2012
April
2
Tax Update (Volume 4, Issue 1)



Velcro Canada Inc. v. The Queen: Riding Prévost Car to Victory
In the tax world, "treaty-shopping" occurs when a person resident in Country A organizes a legal entity in, and directs income through, Country B, solely to secure benefits under a tax treaty between Countries B and C that would not be available to a resident of Country A, typically preferential tax treatment for income sourced from Country C.

In recent years, tax administrations around the world, including Canada, have addressed this concern by adding limitation of benefits articles to existing tax treaties to deny treaty benefits when certain criteria are met. However, when a tax treaty does not include a limitation of benefits clause, the primary tool for challenging treaty shopping in the context of non-resident withholding tax is to assert that the person claiming the treaty benefits is not the "beneficial owner" of the relevant income, as preferential withholding tax rates under tax treaties that follow the OECD Model Convention typically only apply where the income recipient is also the beneficial owner of such income.

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More on FATCA … and More to Come: The Internal Revenue Service and Treasury Department Release Proposed Regulations
In 2010, the United States amended the Internal Revenue Code of 1986 to add provisions relating to foreign account tax compliance. Intended to combat international tax evasion by U.S. persons, these amendments were a mere 10 pages long, but they contemplated a comprehensive worldwide system of information gathering, reporting and withholding.

Since then, the Internal Revenue Service and the Treasury Department have issued several releases intended to provide guidance with respect to the manner in which the system is to operate. They have also engaged in extensive consultations with affected persons. This process culminated with the release, on February 8, 2012, of approximately 400 pages of proposed regulations and explanatory material. Comments on the proposed regulations may be submitted until April 30, 2012.

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Changes to Rules for Canadian Property Dispositions by Non-Residents
Canada taxes non-residents on their gains from the disposition of taxable Canadian property. Recent amendments have aligned Canada’s rules more closely with Canada’s tax treaties, thereby eliminating Canadian tax on gains from the disposition of Canadian investments in many cases and enhancing the ability of Canadian business to attract foreign investors.
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