The Double Taxation Relief (Taxes on Income) (Canada) Order 1985

EXPLANATORY NOTE

The Protocol scheduled to this Order makes certain alterations to the Convention set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Canada) Order 1980 as amended by the Protocol set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Canada) (No.2) Order 1980 (S.I. 1980/1528).

It contains a new provision in Article I which provides that profits from the use, maintenance or rental of containers will be taxed only in the country in which the operator is resident.

Two important changes are made in the new Article II on Dividends. First, a Canadian company which receives a dividend from a United Kingdom company in which it controls 10 per cent or more of the voting power, will be entitled to payment of one-half of the United Kingdom tax credit less tax at 10 per cent on the sum of the credit and the dividend. Second, the rate of Canadian tax on dividends paid by a Canadian company to a United Kingdom company which controls at least 10 per cent of the voting power of the paying company will be reduced to 10 per cent.

Other provisions include a reduction to 10 per cent in the rate of withholding tax on interest in both countries and a minor amendment in the royalties article to ensure, in effect, that copyright royalties on video tapes for home use are exempt in the source country.

Article V introduces provisions for the exclusion of business property and a de minimis limit in charging capital gains tax in respect of certain unquoted shares and certain interests in partnerships and trusts.

Under Article VI pensions are to be taxed only in the country of the taxpayer's residence. Annuities may be taxed in either country but the rate of tax in the country of source is not to exceed 10 per cent.

Article IX provides that the rate of the additional tax which may be charged on the profits of a permanent establishment (in excess of the first £250,000 or $C500,000, whichever is the greater) which a company resident in one country has in the other is not to exceed 10 per cent.

Other changes are made to the Articles dealing with Estates and Trusts, Elimination of Double Taxation, Miscellaneous Rules, and Offshore Activities.

The Protocol enters into force on the date of the later of the notifications by each country of the completion of its procedures for bringing the Protocol into force. The provisions relating to dividends, interest and royalties are to take effect for amounts paid on or after the first day of the second month following that in which the Protocol enters into force; and the provisions relating to pensions and annuities are to take effect for amounts paid on or after 6 April following the date on which the Protocol enters into force. All other provisions are to take effect in the United Kingdom for any year of assessment, financial year or chargeable period beginning on or after 1 April in the calendar year following that in which the Protocol enters into force.