On February 13, 2012, Finance released the “Agreement Between The Government Of Canada And The Government Of The Hong Kong Special Administrative Region Of The People’s Republic Of China For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Income” (the Treaty). The agreement reduces withholding tax rates on dividends (to 5% or 15%, depending on the circumstances), interest (to 10%), and royalties (to 10%). However, a specific anti-avoidance rule is contained in the Articles of the Treaty dealing with these items of income. For example, if “one of the main purposes” of establishing a Hong Kong holding company (in-bound to Canada) is to access the lower withholding tax rate on dividends, interest, or royalties, then the benefit of the lower withholding tax rate is apparently not available. See, for example, Article 10(7) of the Treaty. The Capital Gains Article of the Treaty preserves taxation in Canada in respect of shares deriving more than 50% of their value directly or indirectly from immovable property situated in Canada. There is no “business exception” of the kind found in the Canada-Luxembourg treaty, for example. Given that there is no obvious potential for tax avoidance, the Capital Gains Article of the Treaty does not contain the same targeted anti-avoidance rule. Once the treaty is ratified, Hong Kong companies may become useful in the (outbound) foreign affiliate context: for example, as group entities financing into other foreign countries (including China).