Rates Cut In New Canada, Spain DTA Protocol
Canada and Spain have signed a Protocol to their income tax convention which, when implemented, will reduce the withholding tax rates applicable on payments of dividends and interest.
The Protocol was inked on November 18, 2014, by Canada’s Ambassador to Spain, Jon Allen, and Spain’s Finance Minister, Cristóbal Montoro. The original agreement was signed in 1976, and negotiations toward a revised treaty began in April 2007.
The Protocol caps the withholding tax that can be charged on dividend income by the source country at five percent, where the beneficial owner is a company (other than a partnership) that holds directly at least 10 percent of the capital of the company paying the dividend income.
Dividend income paid to certain pension plans will be exempt from withholding tax. In all other cases, the rate charged will not exceed 15 percent of the gross amount of the dividend.
It also states that where a company that is a resident of one state has a permanent establishment in the other state, repatriated profits from the operations in that other state can be taxed by that state, but the rate of tax on repatriated profits may not exceed five percent.
Under other changes, the maximum withholding tax on interest will not exceed ten percent of the gross amount of the interest. Exemptions will be granted where the beneficial owner of the interest is a resident of the other contracting state and is dealing at arm’s length with the payer, and where the interest is paid on loans made, guaranteed or insured, by certain export agencies.
The revised agreement also includes new provisions on foreign tax credits and on the mutual agreement procedure to resolve double tax disputes with taxpayers bilaterally. The Protocol also provides for assistance in the collection of taxes, and incorporates the Organisation for Economic Co-operation and Development’s new standard for the exchange of tax information.
Canadian Finance Minister Joe Oliver said: “Bilateral tax agreements 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, [this] agreement will help keep Canada well positioned as a destination of choice to work, do business, and invest.”
Montoro added: “The Protocol improves the provisions of the Canada-Spain Income Tax Convention and adapts them to reflect the current economic relationship between our two countries. It also updates the provisions of the Convention to reflect changes that were made to the Organisation for Economic Co-operation and Development’s Model Tax Convention. Furthermore, the Protocol will promote both Canadian investment in Spain and Spanish investment in Canada. The taxation of dividend and interest payments is reduced and certain tax exemptions are provided. This will help stimulate trade and investment between our two countries and provide new business opportunities.”
