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Highlights
CORPORATIONS/PARTNERSHIPS
Amendments to the Canada-U.S. Income Tax Treaty Have a
Significant Impact on the Use of Hybrid Entities in Cross-border
Structures
Peter Jovicic
The Fifth Protocol to the
Canada–United States Income Tax Convention (1980) will have many
ramifications for cross-border structures. The Fifth Protocol has provisions
directed at limited liability companies, unlimited liability companies and other
fiscally transparent entities. Many conventional structures may no longer be
viable, especially structures with fiscally transparent entities. The Fifth
Protocol was signed on September 21, 2007 and controversy has since ensued as to
its interpretation. Unlike the language of most tax conventions, the language of
the Fifth Protocol is often both complex and ambiguous. Peter Jovicic reviews
the Fifth Protocol as it may apply to fiscally transparent entities, explains
the ramifications for many cross-border structures, and identifies the
ambiguities that exist. The article is essential reading for tax advisors that
work with cross-border structures because while the full extent of the
Protocol's impact on the use of hybrid entities is still unclear, it is likely that the structuring of Canada-U.S.
cross-border investments will be dramatically altered. Investors in Canada and
the U.S. (and their advisors) structuring cross-border investments in the future
(and considering how to restructure their existing investments) will certainly
have to respond to these significant changes.
TRUSTS/PARTNERSHIPS
The "SIFT" Tax: The December 20, 2007 Backgrounder and
Outstanding Issues
Judith E. Harris
The tax imposed on "specified
investment flow-through" or "SIFT" trusts and partnerships was initially
announced in a surprise release from the Department of Finance on October 31,
2006. The SIFT tax was imposed with a view to achieving a Canadian tax regime
for certain publicly traded income trusts and partnerships, and their investors,
that is roughly equivalent to the regime that applies to corporations and their
investors. The resulting SIFT tax regime contains a number of anomalies and
uncertainties regarding its intended application. To address some of these
issues, on December 20, 2007, in a Backgrounder to a news release, the
Department of Finance described a number of legislative proposals that it
intends to implement. Judith Harris describes a few of the proposed changes, the
issues that they were intended to address, and some of the remaining issues that
do not appear to have been remedied by the proposed changes described in the
Backgrounder. The proposals set out in the Backgrounder go a long way toward
resolving many of what appear to be inadvertent consequences, ambiguities and
oversights in the current SIFT rules. There remain several important issues,
however.
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Board
Gordon S. Funt
Editor-in-Chief
Fraser Milner Casgrain LLP
Vancouver
Judith E. Harris
Osler, Hoskin & Harcourt LLP
Toronto
F. Patrick Kirby, QC
Felesky Flynn LLP
Edmonton
D. Bernard Morris
Bennett Jones LLP
Toronto
Martin J. Rochwerg
Miller Thomson LLP
Toronto
Paul K. Tamaki
Blake, Cassels & Graydon LLP
Toronto |