On January 18, 2016 the Canadian Department of Finance issued a press release announcing that on January 15, 2016 the Canadian Trade Office in Taipei and the Taipei Economic and Cultural Office in Canada signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Hereafter: the DTA).

Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.

 

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

 

Taxes covered

Based on Article 2, Paragraph 1 of the DTA (“Taxes Covered”), the existing taxes to which the DTA will apply are:

(a)   in the territory in which the income tax law administered by the Canada Revenue Agency is applied, the taxes imposed under the Income Tax Act; and

(b)   in the territory in which the taxation law administered by the Taxation Administration, Ministry of Finance, Taiwan is applied:

(i)     the profit seeking enterprise income tax;

(ii)    the individual consolidated income tax; and

(iii)   the income basic tax.

 

Article 2, Paragraph 2 of the DTA subsequently arranges that the DTA will apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Arrangement in addition to, or in place of, the existing taxes.

 

Permanent establishment

Article 5, Paragraph 3 of the DTA (“Permanent Establishment”) arranges that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than six months.

 

Article 5, Paragraph 4 of the DTA subsequently arranges that an enterprise of a territory will be deemed to have a permanent establishment in the other territory if:

(a)   it carries on supervisory activities within the other territory for more than six months in connection with a building site or construction or installation project which is being undertaken in the other territory;

(b)   it furnishes services, including consultancy services, through employees or other personnel or persons engaged by the enterprise for such purpose, but only where activities of that nature continue within that other territory, for the same or a connected project, for a period or periods aggregating more than 183 days within any twelve month period.

 

Immovable property

Article 6, Paragraph 1 of the DTA (“Income from Immovable Property”) arranges that income derived by a resident of a territory from immovable property (including income from agriculture or forestry) situated in the other territory may be taxed in that other territory.

 

With respect to immovable property Article 13, Paragraph 1 of the DTA (“Capital Gains”) arranges that gains derived by a resident of a territory from the alienation of immovable property referred to in Section 6 and situated in the other territory may be taxed in that other territory.

 

Article 13, Paragraph 4 subsequently arranges that Gains derived by a resident of a territory from the alienation of:

(a)   shares, the value of which is derived principally from immovable property situated in the other territory; or

(b)   an interest in a partnership, trust or other entity, the value of which is derived principally from immovable property situated in that other territory;

may be taxed in that other territory.

 

Associated enterprises

Article 9, Paragraph 2 of the DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.

 

Article Article 9, Paragraph 3 of the DTA contains the following statute of limitations: “The government of a territory will not change the income of an enterprise in the circumstances referred to in paragraph 1 after the expiry of the time limits provided in its domestic laws and, in any case, after eight years from the end of the year 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.”

 

Article 9, Paragraph 4 of the DTA subsequently arranges that the provisions of Article 9, paragraphs 2 and 3 will not apply in the case of fraud or wilful default.

 

Dividends

If the beneficial owner of the dividends is a resident of the other Contracting Territory, Article 10, Paragraph 2 of the DTA (“Dividends”) maximizes the withholding tax a Source Territory is allowed to withhold over dividend distributions as follows:

(a)   10 per cent of the gross amount of the dividends if the beneficial owner is a company that holds directly or indirectly at least 20 per cent of the capital of the company paying the dividends; and

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

 

Article 10, Paragraph 7 of the DTA contains an anti-abuse clause, which reads as follows: “A resident of a territory is not entitled to any benefits provided under this Section in respect of a dividend if one of the main purposes of any person concerned with the creation, assignment or transfer of the dividend, or with the creation, assignment, acquisition or transfer of the shares or other rights in respect of which the dividend is paid, or with the establishment, acquisition or maintenance of the person that is the beneficial owner of the dividend, is for that resident to obtain the benefits of this Section.”

 

Interest

Article 11, Paragraph 2 of the DTA (“Interest”) maximizes the withholding tax that a Source Territory is a allowed to withhold over interest 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 Territory.

 

Article 11, Paragraph 3 of the DTA subsequently arranges that notwithstanding the provisions of Article 11, paragraph 2:

(a)   interest arising in the territory in which the taxation laws administered by the Taxation Administration, Ministry of Finance, Taiwan are applied and paid to a resident of the territory in which the income tax law administered by the Canada Revenue Agency is applied will be taxable only in the latter territory if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by Export Development Canada;

(b)   interest arising in the territory in which the income tax law administered by the Canada Revenue Agency is applied and paid to a resident of the territory in which the taxation laws administered by the Taxation Administration, Ministry of Finance, Taiwan are applied will be taxable only in the latter territory if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the instrumentalities which aim at promoting export and are approved by the Taxation Administration, Ministry of Finance, Taiwan; and

(c)   interest arising in a territory and paid to:

(i)     the authority administering the other territory or a subdivision or local authority thereof,

(ii)    the central bank of the other territory, or

(iii)   an entity owned by the authority administering the other territory and mutually agreed upon by the competent authorities of the territories; 

will be taxable only in that other territory.

 

Article 11, Paragraph 8 of the DTA contains an anti-abuse clause, which reads as follows: “A resident of a territory is not entitled to any benefits provided under this Section in respect of interest if one of the main purposes of any person concerned with the creation, assignment or transfer of the interest, or with the creation, assignment, acquisition or transfer of the debt-claim or other rights in respect of which the interest is paid, or with the establishment, acquisition or maintenance of the person that is the beneficial owner of the interest, is for that resident to obtain the benefits of this Section.”

 

Royalties

Article 12, Paragraph 2 of the DTA (“Royalties”) maximizes the withholding tax that a Source Territory is a allowed to withhold over royalties to 10 per cent of the gross amount of the royalties if the beneficial owner of the royalties is a resident of the other Contracting Territory.

 

Article 12, Paragraph 7 of the DTA contains an anti-abuse clause, which reads as follows: “A resident of a territory is not entitled to any benefits provided under this Section in respect of a royalty if one of the main purposes of any person concerned with the creation, assignment or transfer of the royalty, or with the creation, assignment, acquisition or transfer of rights in respect of which the royalty is paid, or with the establishment, acquisition or maintenance of the person that is the beneficial owner of the royalty, is for that resident to obtain the benefits of this Section.”

 

Other

Furthermore the DTA contains provisions regarding a Mutual Agreement Procedure (Article 24) and regarding the Exchange of Information (Article 25).

 

Click here to be forwarded to the text of the DTA as available on the website of the Canadian Department of Finance, which will open in a new window.

 

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

 

 

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