Long Awaited Canada-US Treaty Protocol Includes Some Twists

On September 21, 2007, Canadian Finance Minister, Jim Flaherty, and U.S Treasury Secretary, Henry M. Paulson, Jr., signed the Fifth Protocol to the 1980 Canada-U.S. Tax Treaty (the "Treaty"), concluding nearly 10 years of negotiations.  

The Protocol will enter into force once Canada and the U.S. exchange ratification documents, which is not expected to occur before later on in 2008, and not earlier than January 1, 2008. Generally, the Protocol is effective for taxable years that begin after the calendar year in which ratification documents are exchanged (i.e. as early as 2008), but several provisions have other effective dates, as described below.

The principal elements of the Protocol were widely anticipated as their content was announced as part of Canada's controversial March 19, 2007 Budget; however, other changes to the Treaty come as a surprise. The key implications of the Protocol may be briefly summarized as follows.