The Double Taxation Relief (Taxes on Income) (Canada) Order 1980

Made: 21st May 1980

At the Court at Buckingham Palace, the 21st day of May 1980

Present,

The Queen's Most Excellent Majesty in Council

Whereas a draft of this Order was laid before the House of Commons in accordance with the provisions of section 497(8) of the Income and Corporation Taxes Act 1970[^f00001], and an Address has been presented to Her Majesty by that House praying that an Order may be made in the terms of that draft:

Now, therefore, Her Majesty, in exercise of the powers conferred upon Her by section 497 of the Income and Corporation Taxes Act 1970, and of all other powers enabling Her in that behalf, is pleased, by and with the advice of Her Privy Council, to order, and it is hereby ordered, as follows:—

1

This Order may be cited as the Double Taxation Relief (Taxes on Income) (Canada) Order 1980.

2

It is hereby declared—

• (a) that the arrangements specified in the Convention set out in the Schedule to this Order have been made with the Government of Canada with a view to affording relief from double taxation in relation to income tax, corporation tax or capital gains tax and taxes of a similar character imposed by the laws of Canada; and

• (b) that it is expedient that those arrangements should have effect.

SCHEDULE — CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE GOVERNMENT OF CANADA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS

The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Canada;

Desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains;

Have agreed as follows:

ARTICLE 1 — Personal Scope

This Convention shall apply to persons who are residents of one or both of the Contracting States.

ARTICLE 2 — Taxes Covered

1

The taxes which are the subject of this Convention are:

• (a) in Canada: the income taxes which are imposed by the Government of Canada, (hereinafter referred to as “Canadian tax”);

• (b) in the United Kingdom of Great Britain and Northern Ireland: the income tax, the corporation tax, the capital gains tax, the petroleum revenue tax and the development land tax (hereinafter referred to as “United Kingdom tax”).

2

The Convention shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of this Convention in addition to, or in place of, the existing taxes by either Contracting State or by the Government of any territory to which the present Convention is extended under Article 26. The Contracting States shall notify each other of changes which have been made in their respective taxation laws.

ARTICLE 3 — General Definitions

ARTICLE 4 — Fiscal Domicile

3

Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of the Convention to such person.

ARTICLE 5 — Permanent Establishment

4

A person—other than an agent of an independent status to whom paragraph 5 applies—acting in a Contracting State on behalf of an enterprise of the other Contracting State shall be deemed to be a permanent establishment in the first-mentioned State if he has, and habitually exercises in that first-mentioned State, an authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise.

5

An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business.

6

The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

ARTICLE 6 — Income from Immovable Property

ARTICLE 7 — Business Profits

7

Where profits include items of income which are dealt with separately in other Articles of this Convention, the provisions of this Article shall not prevent the application of the provisions of those other Articles with respect to the taxation of such items of income.

ARTICLE 8 — Shipping and Air Transport

ARTICLE 9 — Associated Enterprises

Where—

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any income, deductions, receipts or outgoings which would, but for those conditions, have been attributed to one of the enterprises, but, by reason of those conditions, have not been so attributed, may be taken into account in computing the profits or losses of that enterprise and taxed accordingly.

ARTICLE 10 — Dividends

ARTICLE 11 — Interest

8

Where, owing to a special relationship between the payer and the person deriving the interest or between both of them and some other person, the amount of the interest paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.

9

Any provision in the law of a Contracting State relating only to interest paid to a non-resident company shall not operate so as to require such interest paid to a company which is a resident of the other Contracting State to be treated as a distribution of the company paying such interest. The preceding sentence shall not apply to interest paid to a company which is a resident of a Contracting State in which more than 50 per cent of the voting power is controlled, directly or indirectly, by a person or persons resident in the other Contracting State.

10

The provisions of paragraph 2 of this Article shall not apply to interest where the beneficial owner of the interest—

• (a) does not bear tax in respect thereof in Canada; and

• (b) sells (or makes a contract to sell) the holding from which the interest is derived within three months of the date on which such beneficial owner acquired that holding.

ARTICLE 12 — Royalties

ARTICLE 13 — Capital Gains

ARTICLE 14 — Professional Services

ARTICLE 15 — Dependent Personal Services

ARTICLE 16 — Artistes and Athletes

ARTICLE 17 — Pensions and Annuities

ARTICLE 18 — Government Service

ARTICLE 19 — Students

Payments which a student, apprentice or business trainee who is or was immediately before visiting one of the Contracting States a resident of a Contracting State and who is present in the other Contracting State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that other State, provided that such payments are made to him from sources outside that other State.

ARTICLE 20 — Estates and Trusts

ARTICLE 21 — Elimination of Double Taxation

ARTICLE 22 — Non-Discrimination

ARTICLE 23 — Mutual Agreement Procedure

ARTICLE 24 — Exchange of Information

The competent authorities of the Contracting States shall exchange such information (being information which is at their disposal under their respective taxation laws in the normal course of administration) as is necessary for the carrying out of the provisions of this Convention or for the prevention of fraud or for the administration of statutory provisions against legal avoidance in relation to the taxes which are the subject of this Convention. Any information so exchanged shall be treated as secret and shall not be disclosed to persons other than persons (including a court or administrative tribunal) concerned with the assessment, collection or enforcement in respect of the taxes which are the subject of this Convention. No information as aforesaid shall be exchanged which would disclose any trade, business, industrial or professional secret or trade process.

ARTICLE 25 — Diplomatic and Consular Officials

ARTICLE 26 — Extension

ARTICLE 27 — Miscellaneous Rules

ARTICLE 28 — Entry into Force

ARTICLE 29 — Termination

This Convention shall continue in effect indefinitely but the Government of either Contracting State may, on or before 30 June in any calendar year after the year 1980 give notice of termination to the Government of the other Contracting State and, in such event, this Convention shall cease to be effective:

In witness whereof the undersigned, duly authorised thereto, have signed this Convention.

Done in duplicate at London, this 8th day of September 1978 in the English and French languages, both texts being equally authoritative.

Signed

N.E. Leigh — Clerk of the Privy Council

For the Government of the United Kingdom of Great Britain and Northern Ireland:

FRANK JUDD

For the Government of Canada:

PAUL MARTIN

Explanatory note

EXPLANATORY NOTE

The Convention with Canada scheduled to this Order replaces the Agreement signed on 12 December 1966. It provides that shipping and air transport profits, certain trading profits not arising through a permanent establishment and the earnings of temporary business visitors are, subject to certain conditions, to be taxed only in the country of the taxpayer's residence. Government salaries are normally to be taxed by the paying Government only. Pensions are normally to be taxed by the country of the taxpayer's residence, but where the pension exceeds £5,000 sterling (10,000 Canadian dollars) the excess may also be taxed in the country of source. United Kingdom public service pensions paid to a resident of Canada may be taxed in the United Kingdom. Payments made to visiting students and business apprentices for their maintenance, education or training are normally to be exempt in the country visited. Provision is made for income from immovable property to be taxed in the country in which the property is situated. Capital gains arising from the disposal of movable property will, in general, be taxed in the country of the taxpayer's residence, unless they arise from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country or from the disposal of petroleum exploration or exploitation rights or of related assets. Capital gains arising from the disposal of immovable property and from the disposal of shares in unquoted companies, of an interest in a partnership or trust, whose assets relate primarily to immovable property may also be taxed in the country in which the property is situated.

The rates of tax on income flowing from one country to the other are, in general, not to exceed 15 per cent in the case of dividends and interest and 10 per cent in the case of royalties. However copyright royalties (other than those relating to films and television) are to be exempt in the country of source. The rate of Canadian tax on trust or estate income from Canada is not to exceed 15 per cent.

The Dividends Article provides rules which are to apply to the taxation of dividends as long as under United Kingdom law an individual resident in the United Kingdom is entitled to a tax credit in respect of dividends paid by a company resident in the United Kingdom. Where a United Kingdom company pays a dividend to an individual resident in Canada or to a Canadian company controlling less than 10 per cent of the voting power of the United Kingdom company, the recipient will receive a tax credit. The credit will be equal to the tax credit which would be payable to a United Kingdom resident individual less a sum not exceeding 15 per cent of the aggregate of the dividend and tax credit.

Where income continues to be taxable in both countries relief from double taxation is to be given by the country of the taxpayer's residence. There are the usual provisions for safeguarding nationals and enterprises of one country against discriminatory taxation in the other country though an additional tax of not more than 15 per cent may be charged where the profits of a permanent establishment which a company resident in one country has in the other exceed £250,000 (500,000 Canadian dollars). Provision is also made for the exchange of information and for consultation between the taxation authorities of the two countries.

The Convention is, generally, to take effect in the United Kingdom for the year of assessment or financial year starting in 1976 but the provisions relating to the United Kingdom tax credit will take effect for dividends paid after 31 March 1973.

Footnotes

[^f00001]: section 497 was amended and extended by sections 98(2) and 100(1) of the Finance Act 1972 (c. 41) and section 10 of the Capital Gains Tax Act 1979 (c. 14).

[^f00002]: S.I. 1966/227.

[^f00003]: S.I. 1967/482.