Canada, UK Revise Double Tax Agreement
Canada and the UK on July 21, 2014, signed a protocol to their Double Tax Agreement that amends its withholding tax and information exchange provisions.
The Protocol includes an exemption from withholding tax for payments of interest made in respect of loans between persons at arm’s length. The headline withholding tax rate for interest is now ten percent.
Organizations administering or providing benefits under recognized pension plans will be exempt from withholding tax on dividends. The withholding tax on royalties shall not exceed ten percent.
The protocol also contains a revised provision on the exchange of tax information, which reflects the new standards developed by the Organisation for Economic Cooperation and Development. Lastly, it provides for assistance in the collection of taxes and introduces an arbitration procedure.
Canada and the UK must now complete their respective domestic ratification procedures before the changes can enter into force.
The Canadian Finance Minister, Joe Oliver, said: “Bilateral tax conventions like this are fundamental to eliminating tax barriers to trade and investment. They provide greater certainty to taxpayers regarding their potential liability to tax in the other country. They allocate taxing rights between the two countries so that taxpayers are not subject to double taxation. They reduce the risk of burdensome taxation that may arise because of high withholding taxes. And they ensure that taxpayers will not be subject to discriminatory taxation in the foreign jurisdiction. By advancing these goals, today’s agreement will help keep Canada well positioned as a place to work, do business, and invest.”
