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Convention between Canada and the United States of America further modifying and supplementing the Convention and accompanying Protocol of March 4, 1942, for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion in the Case of Income Taxes, as modified by the Supplementary Convention of June 12, 1950 [1957] CATSer 16 (26 September 1957)

E102357 - CTS 1957 No. 22

CONVENTION BETWEEN CANADA AND THE UNITED STATES OF AMERICA FURTHER MODIFYING AND SUPPLEMENTING THE CONVENTION AND ACCOMPANYING PROTOCOL OF MARCH 4, 1942,(1) FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION IN THE CASE OF INCOME TAXES, AS MODIFIED BY THE SUPPLEMENTARY CON­VENTION OF JUNE 12, 1950.(2)

The Government of Canada and the Government of the United States of America, being desirous of further modifying and supplementing in certain respects the Convention and accompanying Protocol for the avoidance of double taxation and the prevention of fiscal evasion in the case of income taxes signed at Washington on March 4, 1942, as modified by the Supplementary Convention of June 12, 1950, have decided to conclude a Supplementary Convention for that purpose and have appointed as their respective Plenipotentiaries:

The Government of Canada:

Walter E. Harris, Minister of Finance in the Government of Canada

The Government of the United States of America:

Livingston T. Merchant, Ambassador Extraordinary and Plen­ipotentiary of the United States of America to Canada.

who, having communicated to one another their respective full powers, found in good and due form, have agreed as follows:

ARTICLE I

The provisions of the Convention and Protocol between Canada and the United States of America, signed at Washington on March 4, 1942, as modified by the Supplementary Convention of June 12, 1950, are hereby further modified and supplemented as follows:

(a) By inserting as the second paragraph of Article V, the following new paragraph:

"An enterprise of one of the contracting States engaged in the operation of motor vehicles, as a common carrier or as a contract carrier, shall be exempt from tax by the other contracting State in respect of income (if taxed by the former State in respect of such income) arising from the transportation of property for hire between points in one State and points in the other State."

(b) By amending Article VII to read as follows:

"1. A resident of Canada shall be exempt from United States tax upon compensation for personal (including professional) services performed during the taxable year within the United States of America if he is present therein for a period or periods not exceeding a total of 183 days during the taxable year and either of the following conditions is met -

(a) his compensation is received for such personal services performed as an officer or employee of a resident, or corporation or other entity of Canada or of a permanent establishment in Canada of a United States enterprise, or

(b) his compensation received for such personal services does not exceed $5,000.

"2. The provisions of paragraph 1 of this article shall apply, mutatis mutandis, to a resident of the United States with respect to compensation for such personal services performed in Canada."

(c) By amending Article XI as follows:

(A) By inserting in paragraph 1 immediately after "in respect of income" the words and symbols "(other than earned income)".

(B) By adding the following new paragraph:

5. To ensure that the benefit of the reduced rate of income tax provided for by this article is limited to persons entitled thereto each contracting State may make regulations requiring the with­holding in such State of an additional amount from income derived from sources in the other contracting State.

(d) By striking out paragraph 2 of Article XI, and paragraph 6 of the Protocol as added by the Convention of June 12, 1950, redesignating paragraphs 7, 8, 9, 10, 11 and 12 thereof as paragraphs 6, 7, 8, 9, 10, and 11 respectively, and inserting in lieu of paragraph 2 of Article XI the following:

"2. Notwithstanding the provisions of paragraph 1 of this article, income tax in excess of 5 percent shall not be imposed by one of the contracting States in respect of dividends paid by a corporation organized under the laws of such State, or of a political subdivision thereof, to a corporation organized under the laws of the other con­tracting State, or of a political subdivision thereof; if,

(a) during the whole of the taxable year of the payor corporation at least 51 percent of the voting stock of such corporation was beneficially owned by the recipient corporation either alone or in association with not more than three other corporations of such other State, but each such recipient corporation must own at least 10 percent of the voting stock of the payor corporation; and

(b) not more than one-fourth of the gross income of the payor corporation (other than a corporation the chief business of which is the making of loans) is derived from interest and dividends other than interest and dividends received from its subsidiary corporations.

This paragraph shall not apply if the competent authority in the State imposing the tax is satisfied that the corporate relationship between the corporations has been arranged or is maintained primarily with the intention of taking advantage of this paragraph.

(e) By adding immediately after Article XIII C the following new article:

ARTICLE XIII D

1. In the computation of taxable income for any taxable year under the revenue laws of the United States, there shall be allowed as a deduction contributions to any organization created or organized under the laws of Canada (and constituting a charitable organization for the purpose of the income tax laws of Canada) if and to the extent such contributions would have been deductible as a charitable contribution had such organization been created or organized under the laws of the United States: Provided, however, that such deduction shall not exceed an amount determined by applying to the taxpayer's taxable income (in the case of a corporation) or adjusted gross income (in the case of an individual) from sources in Canada the same percentage as is applied by Canada to income in determining the limitation of the deduction for gifts or contributions to charitable organizations of Canada.

2. In the computation of taxable income for any taxation year under the income tax laws of Canada, there shall be allowed as a deduction gifts to any organization created or organized under the laws of the United States (and constituting a charitable contribution for the purposes of the income tax laws of the United States) if and to the extent such gifts would have been allowable had such organization been a Canadian charitable organization: Provided, however, that such deduction shall not exceed an amount determined by applying to the taxpayer's income from sources in the United States upon which he is subject to tax in Canada the same percentage as is applied by Canada to income in determining the limitation of the deduction for such gifts.

(f) By adding immediately after Article XIII D, as added by this Supple­mental Convention, the following new article:

ARTICLE XIII E

A resident of one of the contracting States who is a beneficiary of an estate or trust of the other contracting State shall be exempt from tax by such other State with respect to that portion of any amount paid, credited, or required to be distributed by such estate or trust to such beneficiary out of income from sources without such other State.

(g) By amending Article XX 2 as follows:

(A) By striking out clauses (b) and (c) thereof:

(B) By striking out the designation (d) in clause (d) and insert­ing in lieu thereof "(b)"; and

(C) By striking out in clause (b) as so redesignated, "Income War Tax Act" and inserting in lieu thereof "Income Tax Act".

ARTICLE II

1. The present Supplementary Convention shall be ratified and the instru­ments of ratification shall be exchanged at Washington as soon as possible.

2. The present Supplementary Convention shall become effective with respect to taxable years beginning on and after the first day of January of the calendar year in which occurs the exchange of the instruments of ratification. It shall continue effective indefinitely as though it were an integral part of the Convention of March 4, 1942, as modified and supplemented by the Convention of June 12, 1950.

(1) Canada Treaty Series 1942, No. 2.

(2) Canada Treaty Series 1951, No. 22.

IN WITNESS WHEREOF the above-named Plenipotentiaries have signed the present Convention and have affixed thereto their respective seals.

Done, in duplicate, at Ottawa this 8th day of August, 1956.

(SEAL) For the Government of Canada:

Walter E. Harris.

(SEAL) For the Government of the United States of America:

Livingston T. Merchant.