Ottawa, September 21, 2007
Archived - Canada's New Government Signs Protocol to the Canada-U.S Tax Treaty for the Benefit of Canadians
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- Backgrounder - The Fifth Protocol to the Canada-United States Income Tax Convention
- Protocol Amending the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital (September 21, 2007)
The Honourable Jim Flaherty, Minister of Finance, today signed an important tax agreement with Henry M. Paulson, Jr., U.S. Secretary of the Treasury, concluding nearly 10 years of negotiations.
"We are modernizing a long-standing treaty for the betterment of individuals and businesses on both sides of the border, including manufacturers" said Minister Flaherty. "Today we have signed an agreement that will stimulate further trade and investment and make our tax systems more efficient."
The fifth update of the Canada-U.S. Tax Treaty:
- eliminates withholding taxes on cross-border interest payments;
- extends treaty benefits to limited liability companies;
- allows taxpayers to require that certain key double tax issues, such as transfer pricing, be settled through arbitration;
- ensures that there is no double taxation on emigrants' gains;
- gives mutual tax recognition of pension contributions; and
- clarifies how stock options are taxed.
The agreement signed today is a set of changes to the existing Canada-United States Income Tax Convention, one of over 85 bilateral tax treaties that Canada has with other countries. First signed in 1980, the Convention has been updated four times in the past through agreements known as Protocols.
Minister Flaherty and Secretary Paulson signed the Protocol at Willson House, a 100year-old heritage property overlooking Quebec's Meech Lake. After the signing ceremony the Secretary and the Minister spoke briefly to reporters, noting that the Protocol reflects the strength and depth of the Canada-United States partnership.
"With the signing of this document, we have concluded nearly a decade of negotiations and strengthened the bonds of economic co-operation between our two countries" said Minister Flaherty. "In this highly competitive global economy, we need to continually explore ways to grow, expand and compete. Further improving and refining our relationship with our friends and neighbours to the south is essential."
"After nearly 10 years of negotiations, we are delighted that the government has signed an updated Canada-U.S. Tax Treaty" said Perrin Beatty, President and Chief Executive Officer of the Canadian Chamber of Commerce. "The economic benefits to Canada stemming from the elimination of the withholding tax on interest paid are tremendous and will result in a substantial increase in capital and foreign direct investments in Canada."
"This is good for business, consumers and the Canadian economy" said Nancy Hughes Anthony, President and Chief Executive Officer of the Canadian Bankers Association. "The elimination of this tax will result in increased investment, reduced cost of capital, and more efficient North American capital markets. It is the right move."
"Getting the Canada-U.S. Tax Treaty signed is certainly good news for Canada, and especially for venture capital markets, the seedbed of innovation" said Finn Poschmann, Director of Research with the C.D. Howe Institute. "And our research suggests that the bilateral elimination of withholding taxes will substantially improve the efficiency of capital markets, attract foreign direct investment to the country, and help Canadians penetrate the North American market on a more competitive basis."
This agreement must now be ratified in the House of Commons in Canada and in the United States Senate. Minister Flaherty is encouraging legislators of all political stripes to lend their support and pass the Protocol quickly.
Two diplomatic notes setting out more technical aspects of the agreement were also exchanged today. The Protocol and the diplomatic notes are attached.
Also attached is a backgrounder that provides additional information on the Canada-United States Income Tax Convention and today's agreement. The full text of the Protocol can be viewed on the Department of Finance website at www.fin.gc.ca.
For further information, media may contact:
Office of the Minister of Finance
Department of Finance
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