Technical Explanation Clarifies Protocol To Canada-U.S. Tax Treaty, Part Two

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Derivative Benefits Test

A "derivative benefits" clause extends Treaty protection for dividends, interest and royalties to companies controlled (requiring, generally, at least 90% ownership) by qualified persons or other persons if those other persons (a) are resident in countries that have a comprehensive income tax treaty with the United States or Canada, as the case may be, and would be entitled to the same kind of benefits under that treaty, (b) would be qualified persons or otherwise eligible for Treaty benefits if they were residents of the United States or Canada and (c) would be entitled to a rate of tax in that other treaty country on the relevant income that is at least as low as the tax rate in the Treaty. There is also a base erosion rule which requires that the amount of expenses deductible from gross income payable directly or indirectly