In the March 2013 Canadian federal budget, the Minister of Finance announced an intention to consult on possible measures to "protect the integrity of Canada's tax treaties while preserving a business tax environment that is conducive to foreign investment". This protection was seen as necessary in response to the practice of "treaty shopping".
On August 12, 2013, the Department of Finance released a consultation paper on treaty shopping. The government has invited comments by December 13, 2013.
The consultation paper defines "treaty shopping" generally as "a situation under which a person who is not entitled to the benefits of a tax treaty uses an intermediary entity that is entitled to such benefits in order to indirectly obtain those benefits."
The paper outlines the government's view on treaty shopping, its limited success in challenging what it considers to be abusive transactions in the courts and statistics it points to as evidence of treaty shopping with respect to Canada. The paper then discusses the relative merits of different possible approaches, including either a domestic tax rule or a treaty-based rule, and either a general rule or one or more specific rules. The paper invites comment with reference to seven general questions dealing with the foregoing issues.
While it is too early to anticipate precisely which approach the government is likely to pursue to combat its perceived treaty abuse concerns, it seems clear that the government intends to introduce some kind of new measures in this regard.
Please click here for a link to the Department of Finance's News Release and Consultation Paper.