2015-0581551C6 IFA 2015 Q.2: GAAR and treaty shopping

Principal Issues: Can the CRA confirm its stand on the possible application of the GAAR to treaty shopping arrangements?

Position: Yes, the CRA confirms it continues to contemplate the application of the GAAR to treaty shopping arrangements.

Reasons: The GAAR applies to deny tax benefits arising under tax treaties with the same force as tax benefits arising under the Act.

Author: Carruthers, Lori
Section: -

2015 International Fiscal Association Conference
CRA Roundtable

Question 2 - GAAR and treaty shopping
Considering recent developments, can the CRA outline its position on the possible application of the GAAR to treaty shopping arrangements? 

CRA Response

The CRA does not view the comments on treaty shopping that were made in the February 2014 Budget as well as in the August 2014 Finance news release as precluding the application of the GAAR to treaty shopping arrangements.

The CRA continues to contemplate the application of the GAAR to transactions undertaken primarily to secure a tax benefit afforded by a tax treaty and, in fact, the GAAR Committee has recently approved the application of the GAAR to certain treaty shopping arrangements.

The GAAR may be contemplated even in circumstances where a non-resident would otherwise satisfy all of the relevant provisions of a treaty, including residency provisions, specific anti-avoidance rules, limitation on benefits provisions, and anti-conduit measures, if any. We would further note that where Canada’s competent authority determines that a particular non-resident is entitled to the benefits of a treaty, for example under paragraph (6) of Article XXIX-A of the Canada-U.S. treaty, that determination would not preclude the application of the GAAR to transactions undertaken primarily to secure a tax benefit afforded by the treaty. 

Suzanne Saydeh
ATP Division
2015-058155
May 28, 2015

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2015

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2015