In 2012-0467721R3 (released October 16, 2013), the CRA ruled that a deemed dividend paid by a Canadian unlimited liability company (ULC) to a US parent company qualified for the 5% withholding tax rate under the Canada-US tax treaty (Treaty). The ruling is not a new development, but is a useful reminder of a cross-border trap: a fiscally transparent ULC cannot simply pay an ordinary dividend to its US parent (US Co) without attracting 25% Canadian withholding tax on that dividend. The reason is Article IV(7)(b) of the Treaty, which technically denies the beneficial 5% Treaty withholding tax rate on the ordinary dividend paid to US Co. In this latest ruling, the CRA confirmed that the 5% withholding tax rate is available if, instead of a simple $100 dividend, the ULC (1) resolves to increase its paid-up capital by $100 (e.g., capitalizes $100 of retained earnings under the applicable corporate statute), and (2) subsequently resolves to reduce its paid-up capital by $100 and make a corresponding $100 payment to US Co on this reduction. For Canadian tax purposes, a $100 deemed dividend arises in step (1), and Article IV(7)(b) does not apply to prevent US Co from accessing the 5% withholding tax rate on this deemed dividend.