As previously reported in [email protected], there have been of late two significant proposals relating to the treatment of payments of interest by residents of Canada to non-residents. The first is a proposal to eliminate such withholding tax under the provisions of the Income Tax Act (Canada) if the payor and recipient are dealing at arm's length. The second is a proposal in the 5th Protocol to the Canada-US Tax Convention to extend the elimination of withholding tax on payments of interest to non-arm's length recipients provided that the recipient is entitled to the benefits of that Convention.

On December 14, 2007 the changes to the Income Tax Act (Canada) were enacted, completing the process to bring the domestic change applicable to arm's length parties into effect as of January 1, 2008.

With respect to the Protocol, Canada's legislation to ratify and implement the Protocol also received Royal Assent on December 14, 2007. Accordingly, the ratification process in Canada is complete. In the U.S., however, the news is not as favourable. The Protocol still has not been referred to the Senate by the President (via the State Department). Accordingly, the U.S. ratification date is still uncertain at this point.