US Ratifies Fifth Protocol

On September 23, 2008, the Fifth Protocol to the Canada-US Income Tax Convention, 1980 was ratified by the US Senate by unanimous consent, along with pending tax treaties with Iceland and Bulgaria. The Fifth Protocol was signed by Canada and the US on September 21, 2007 and was ratified by Canada on December 14, 2007 when Bill S-2 received Royal Assent.

Among the significant amendments made by the Fifth Protocol to the Convention are the inclusion of a withholding tax exemption for non-related party cross-border interest payments and a phased-in exemption for related party interest payments, a look through rule for applying treaty benefits in respect of income derived through fiscally transparent entities, anti-hybrid rules which will deny treaty benefits with respect to certain common cross-border acquisition and financing arrangements beginning in 2010, a deemed permanent establishment rule which will apply to cross-border service providers beginning in 2010, a