Income Tax Severed Letters

Principal Issues: Whether a dividend paid by a Canadian corporation to a partnership with a 20% US resident corporate partner and an 80% German resident corporate partner would be eligible for the reduced 5% Part XIII withholding tax under the applicable tax treaties.

Position: Yes, The withholding tax rate would be 5% pursuant to both the Canada-US Tax Treaty and the Canada-Germany Tax Treaty.

Reasons: The conditions for the lower 5% withholding tax in Article X(2)(a) of the Canada-US Tax Treaty would be met as the US corporate partner would be considered to own 20% of the shares of the Canadian corporation. The conditions for the lower 5% withholding tax in Article 10(2)(a) of the Canada-Germany Tax Treaty would be met as the German corporate partner would be considered to control at least 10% of the voting power of the shares of the Canadian corporation.