(September 29, 2015)

On September 29, 2015 the Canadian Department of Finance issued a press release announcing that a Protocol amending the existing DTA as concluded between Spain and Canada will enter info force on December 12, 2015.

 

Based on Article 16 of the Protocol the fact that the Protocol enters into force on December 12, 2015 means that the provisions of the Protocol shall have effect:

(a)    In the case of Spain:

(i)      in respect of tax withheld at the source on amounts paid or credited to non-residents, on or after December 12, 2015;

(ii)    in respect of other taxes, for taxation years beginning on or after December 12, 2015; and

(iii)   in all other cases, on or after the date on which this Protocol enters into force.

(b)    In the case of Canada:

(i)      in respect of tax withheld at the source on amounts paid or credited to non-residents, on or after December 12, 2015; and

(ii)    in respect of other taxes, for taxation years beginning on or after December 12, 2015.

 

Paragraph 3 and 4 of Article 16 of the Protocol however arrange that some of its provisions will have retroactive force.

 

Article 16, Paragraph 3 of the Protocol states:

Notwithstanding the provisions of this Article, the provisions of Articles 11 and 12 of this Protocol shall apply in respect of any taxes, mutual agreement procedure or information referred to in these Articles even if such matters pre-date the entry into force of this Protocol or the effective date of any of its provisions.

 

Article 16, Paragraph 4 of the Protocol states:

Notwithstanding the provisions of this Article, the provisions of Article 13 of this Protocol shall apply to revenue claims that are in respect of a tax year that commences after a date that is four years before the date on which this Protocol enters into force.

 

Below we will discuss a selection of the provisions included in the Protocol of which we think they might interest our readers:

 

Fiscal Domicile

The Protocol arranges that Paragraphs 3 and 4 of Article IV of the DTA (“Fiscal Domicile”) shall be deleted and replace by a new Paragraph 3, which reads as follows:

 Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the State of which the person shall be deemed to be a resident, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. If the competent authorities are unable to determine the matter by mutual agreement, they shall endeavour to determine by mutual agreement the mode of application of this Convention to that person.

 

Associated Enterprises

Article 4 of the Protocol a.o. arranges for an amendment to Paragraph 3 of Article IX of the DTA (“Associated Enterprises”). Under the amended provision the period during which authorities can change the income enterprise is extended to 8 years from the end of the taxation period in which the income that would be subject to such change would, but for the conditions referred to in paragraph 1, have been attributed to that enterprise (provided that the domestic law of the respective State does not contain a tighter limit).

 

Dividends

Under Article X, Paragraph 2 of the DTA (“Dividends”) the dividend withholding taxes that a Source State is allowed to withhold over dividend distributions is maximized to 15 per cent of the gross amount of the dividends if the recipient is the beneficial owner of the dividends. The Protocol arranges that Article 10, Paragraph 2 of the DTA is amended in such way that the dividend withholding tax that the Source is allowed to withhold is maximized to:

(a)    5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 10 per cent of the capital of the company paying the dividends;

(b)    15 per cent of the gross amount of the dividends in all other cases.

 

NB The Protocol contains more amendments to Article X of the DTA (“Dividends”)

 

Interest

The Protocol arranges that Article XI Paragraph 2 of the DTA (“Interest”) the maximum withholding tax a Source State is allowed to is lowered to 10 per cent of the gross amount of the interest if the beneficial owner of the interest is a resident of the other Contracting State (is 15% under the existing DTA).

 

The Protocol also arranges that Article XI, Paragraph 7 is amended in such a way that it reads as follows:

Notwithstanding the provisions of paragraph 2:

(a)    interest arising in a Contracting State and paid to a resident of the other Contracting State shall not be taxable in the first-mentioned Contracting State if the beneficial owner of the interest is a resident of the other Contracting State and is dealing at arm's length with the payer;

(b)    interest arising in Spain and paid to a resident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by Export Development Canada; and

(c)    interest arising in Canada and paid to a resident of Spain shall be taxable only in Spain if it is paid in respect of a loan, debt-claim or credit that is owed to, or made, provided, guaranteed or insured by Spain or a political subdivision, local authority or export financing agency thereof, provided the loan, debt claim or credit is in respect of exports.

 

Furthermore a new Paragraph 8 is introduced in Article XI. This new Paragraph 8 reads as follows:

Paragraph 7 (a) shall not apply where all or any portion of the interest is paid or payable on an obligation that is contingent or dependent on the use of or production from property or is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a company.

 

Mutual Agreement Procedure

The Protocol arranges that Article XXV of the DTA (“Mutual Agreement Procedure”) is deleted and replaced by a new Article XXV containing provisions regarding a Mutual Agreement Procedure.

 

Exchange of Information

The Protocol arranges that Article XXVI of the DTA (“Exchange of Information”) is deleted and replaced by a new Article XXVI containing provisions regarding the Exchange of Information.

 

Assistance in the Collection of Taxes

The Protocol introduces a new Article XXVI-A containing provisions regarding the Assistance in the Collection of Taxes.

 

Click here to be forwarded to the text of the Protocol amending the existing DTA as concluded between Spain and Canada as available on the website of the Canadian Department of Finance, which will open in an new window.

 

Click here to be forwarded to the text of the existing DTA (stemming from 1976) as concluded between Spain and Canada as available on the website of the Canadian Department of Finance, which will open in an new window.

 

Are you looking for an other DTA? Then check our section DTAs & TIEAs, which is a very efficient way to locate numerous DTAs.

 

 

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