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Canada-US Treaty Flowchart – Limitation on Benefits

Author(s): John Venuti, Jason Connery, Douglas Poms, and Alexey Manasuev
Date:  June 15, 2009

To be entitled to benefits under income tax treaties, companies must satisfy eligibility requirements. This article includes flowcharts to help practitioners navigate the eligibility requirements of the limitation on benefits provision of the Canada-U.S. income tax treaty.1

Income tax treaties may exempt business income from source country income taxes and eliminate or reduce domestic withholding taxes on payments between residents of the contracting states to an applicable income tax treaty. To be entitled to benefits under an income tax treaty with the United States, companies must not only be a resident of the other contracting state, but generally must also satisfy at least one of the tests in the LOB provision, if applicable.

The flowcharts in this article focus on the eligibility of Canadian resident companies claiming benefits on income that would otherwise be subject to U.S. taxation. This article does not address the eligibility for benefits under the LOB provision of the treaty for estates, trusts, partnerships, or entities treated as fiscally transparent for U.S. or Canadian tax purposes.2 This article is based on the treaty, the associated protocols, and the U.S. Treasury Department’s technical explanation to the fifth protocol. This article is the fifth in a series of articles 4 that provides flowcharts to assist practitioners: …

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