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ARTICLE · 01 NOVEMBER 2007

New Protocol To The Canada-U.S. Income Tax Convention Affects M&A Transactions

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The fifth protocol (Protocol) to the Canada-U.S. Income Tax Convention (Treaty) was signed on September 21, 2007. The Protocol contains the changes to the withholding tax rules for interest and the treatment of limited liability companies.

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Corrado Cardarelli
Corrado Cardarelli
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The fifth protocol (Protocol) to the Canada-U.S. Income Tax Convention (Treaty) was signed on September 21, 2007. The Protocol contains the changes to the withholding tax rules for interest and the treatment of limited liability companies (LLCs) that were previously announced in the Canadian federal budget of March 19, 2007. The Protocol also contains a number of unexpected changes such as the new rules for "hybrid" entities and the new "limitation on benefit" provisions applicable to Canada. Many of these changes could have significant consequences for existing cross-border structures and proposed M&A transactions. This bulletin summarizes these and other changes relevant to M&A transactions.

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