CRA confirms a look-through approach to applying treaties to dividends paid by Canco to a partnership between a German and US partner

CRA confirmed its position that, for treaty purposes, dividends paid by a Canadian corporation to a partnership are considered as paid to the partnership members in proportion to their ownership interests. Where a dividend was paid by the Canco to an 80-20 US general partnership (USP) between a German and US corporate partner:

• The 20% US partner would be entitled to the treaty-reduced rate of 5% since by virtue of Art. X(2)(a) of the Canada-U.S. Treaty it was treated as owning the voting stock in Canco in proportion to its 20% ownership interest in USP; and
• The 80% German partner would be entitled under Art. 10(2)(a) of the Canada-Germany Treaty (referencing where “the beneficial owner [of the dividends] is a company that controls at least 10 per cent of the voting power in the company paying the dividends”) to the treaty-reduced rate of 5% since, under Canadian case law and CRA interpretations as to the meaning of “controls”, it would under the terms of the partnership agreement (according it 80% of the voting rights ) control USP and, thus, Canco.

Neal Armstrong. Summary of 6 September 2024 External T.I. 2019-0796831E5 under Treaties – Income Tax Conventions – Art. 10.