International Tax Newsletter - Spring 2011 - Canada - U.S. LLC Entitled to Benefits even under prior Treaty

April 01, 2011

It has been the position of the Canada Revenue Agency (CRA) that a U.S. Limited Liability Company (LLC) is not entitled to benefits under the Canada-United States Tax Convention (1980) (the Treaty) if the LLC is treated as a fiscally transparent entity for U.S. tax purposes. This view precipitated the introduction of Paragraph 6 of Article IV(6) in the recent Fifth Protocol amendments to the Treaty to consider the LLC member to derive the income, gain or profit amount, effectively providing a look-through to the LLC member and allowing the LLC to claim a treaty benefit. Article IV (6) is effective for taxes withheld at source in respect of amounts paid or credited on or after 1 February 2009 and, for other amounts, for taxation years beginning after 31 December 2008.

In 2010, the Tax Court of Canada released its decision in TD Securities (USA) LLC v. The Queen. The Court concluded that an LLC formed under U.S. law was entitled to benefits under the Canada-U.S. Treaty. The case was concerned with the 2005 and 2006 taxation years and was decided under the Treaty as it applied prior to the Fifth Protocol amendments.

The CRA continues to be of the view that an LLC that is fiscally transparent for U.S. tax purposes is not a resident of the United States for purposes of the Treaty. Nonetheless, relief will be provided in certain circumstances involving years preceding the effective date of Article IV(6).

For further details, Hal Adrion of EisnerAmper LLP in New York can facilitate contact with Bill Macaulay of Smythe Ratcliffe LLP in Canada. 

International Tax Newsletter - Spring 2011 

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