# The Double Taxation Relief (Taxes on Income) (Canada) Order 2003 Draft 2003, ISBN 011046415X The Protocol scheduled to this Order makes certain alterations to the Convention set out in the Schedule to the Double Taxation Relief (Taxes on Income)(Canada) Order 1980 as amended by the Schedule to the Double Taxation Relief (Taxes on Income)(Canada)(No.2) Order 1980 as further amended by the Schedule to the Double Taxation Relief (Taxes on Income)(Canada) Order 1985. Made under: Income and Corporation Taxes Act 1988 (Section 788) ## Introductory text Draft Order in Council laid before the House of Commons under the Income and Corporation Taxes Act 1988, s788 (10), for an Address to Her Majesty from that House praying that the Order be made. INCOME TAX Made 2003 At the Court at Buckingham Palace, the day of 2003 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 788(10) of the Income and Corporation Taxes Act 1988, 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 788 of the said Act, 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 2003. ## 2 It is hereby declared— (a) that the arrangements specified in the Protocol set out in Part I of the Schedule to this Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule, which vary the arrangements set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Canada) Order 1980, as amended by the arrangements set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Canada) (No. 2) Order 1980, as amended by the arrangements set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Canada) Order 1985, 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; (b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of the United Kingdom and the laws of Canada concerning taxes covered by the arrangements including, in particular, provisions about the prevention of fiscal evasion with respect to those taxes; and (c) that it is expedient that those arrangements should have effect. ## Signature Clerk of the Privy Council ## I PROTOCOL AMENDING THE 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, SIGNED AT LONDON ON 8TH SEPTEMBER 1978, AS AMENDED BY THE PROTOCOL SIGNED AT OTTAWA ON 15TH APRIL 1980 AND AS FURTHER AMENDED BY THE PROTOCOL SIGNED AT LONDON ON 16TH OCTOBER 1985 The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Canada; Desiring to conclude a Protocol to amend further the Convention between the Governments of the Contracting States for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains, signed at London on 8th September 1978, as amended by the Protocol signed at Ottawa on 15th April 1980 and as further amended by the Protocol signed at London on 16th October 1985 (hereinafter referred to as “the Convention”); Have agreed as follows: ### ARTICLE I ## 1 Sub-paragraph (c) of paragraph 1 of Article 3 of the Convention shall be deleted and replaced by the following: “(c) the term “person” includes an individual, a trust, a company, any entity treated as a unit for tax purposes and any other body of persons, but does not include a partnership;” ## 2 Clause (i) of sub-paragraph (h) of paragraph 1 of Article 3 of the Convention shall be deleted and replaced by the following: “(i) in relation to the United Kingdom, any British citizen, or any British subject not possessing the citizenship of any other Commonwealth country or territory, provided that citizen or subject has the right of abode in the United Kingdom; and any legal person, partnership, association or other entity deriving its status as such from the law in force in the United Kingdom;” ## ARTICLE II Paragraph 3 of Article 4 of the Convention shall be deleted and replaced by the following: “3 Where by reason of the provisions of paragraph 1 of this Article a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the State of which the person shall be deemed to be a resident, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. If the competent authorities are unable to determine the matter by mutual agreement, they shall endeavour to determine by mutual agreement the mode of application of the Convention to that person.” ## ARTICLE III Article 9 of the Convention shall be deleted and replaced by the following: “ARTICLE 9 Associated enterprises 1 Where: (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State; or (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State; 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 profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included by a Contracting State in the profits of that enterprise and taxed accordingly. 2 Where a Contracting State includes in the profits of an enterprise of that State—and taxes accordingly—profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then, subject to the provisions of paragraph 3 of this Article, that other State shall (notwithstanding any time limits in the domestic law of that other State) make an appropriate adjustment to the amount of tax charged therein on the profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other. 3 Where a Contracting State makes or proposes to make an adjustment in accordance with the provisions of paragraph 1 of this Article, the other Contracting State shall be required to make the appropriate adjustment provided for under paragraph 2 of this Article to the profits of the associated enterprise in that other State only if within six years from the end of the taxation year (in Canada) or the chargeable period (in the United Kingdom) to which the first-mentioned adjustment relates, the competent authority of the other State has been notified that the first-mentioned adjustment has been made or proposed. 4 The provisions of paragraphs 2 and 3 of this Article shall not impose any obligation on Canada in the case of fraud, wilful default or gross negligence or on the United Kingdom in the case of fraudulent conduct.” ### ARTICLE IV ## 3 Paragraph 5 of Article 10 of the Convention shall be deleted and replaced by the following: “5 The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply.” ## 4 Paragraph 7 of Article 10 of the Convention shall be deleted and replaced by the following: “7 The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.” ### ARTICLE V ### ARTICLE VI ### ARTICLE VII ### ARTICLE VIII ## ARTICLE IX The following new Article shall be inserted immediately after Article 20 of the Convention: “ARTICLE 20A Other income 1 Items of income beneficially owned by a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State. 2 The provisions of paragraph 1 of this Article shall not apply to income, other than income from immovable property, if the beneficial owner of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14 of this Convention, as the case may be, shall apply. 3 Notwithstanding the provisions of paragraphs 1 and 2 of this Article, items of income of a resident of a Contracting State not dealt with in the foregoing Articles of this Convention and arising in the other Contracting State may also be taxed in that other State.” ### ARTICLE X ## ARTICLE XI The reference in paragraph 3 of Article 22 of the Convention to “10 per cent.” shall be deleted and replaced by a reference to “5 per cent.”. ## ARTICLE XII Article 24 of the Convention shall be deleted and replaced by the following: “ARTICLE 24 Exchange of information 1 The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by this Convention insofar as the taxation there under is not contrary to this Convention, in particular, to prevent fraud and to facilitate the administration of statutory provisions against legal avoidance. This includes information relating to the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by this Convention. The exchange of information is not restricted by Article 1 of this Convention. Any information received by a Contracting State shall be treated as secret and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by this Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. 2 In no case shall the provisions of paragraph 1 of this Article be construed so as to impose on a Contracting State the obligation: (a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy. 3 If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall obtain that information in the same manner and to the same extent as if the tax of the first-mentioned State were the tax of that other State and were being imposed by that other State, notwithstanding that the other State may not, at that time, need such information for the purposes of its own tax.” ### ARTICLE XIII ## ARTICLE XIV The Governments of the Contracting States shall inform one another, through diplomatic channels, of the completion of the procedures required by their laws for the bringing into force of this Protocol. This Protocol shall enter into force on the date of the later of these notifications and shall thereupon have effect: (a) in Canada: (i) in respect of tax withheld at the source, on amounts paid or credited to non-residents on or after the first day of January in the calendar year next following that in which this Protocol enters into force; and (ii) in respect of other Canadian tax, for taxation years beginning on or after the first day of January in the calendar year next following that in which this Protocol enters into force; (b) in the United Kingdom: (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which this Protocol enters into force; (ii) in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which this Protocol enters into force. IN WITNESS WHEREOF the undersigned, duly authorised thereto by their respective governments, have signed this Protocol. DONE in duplicate at London, this seventh day of May 2003, in the English and French languages, both texts being equally authoritative. ## II EXCHANGE OF NOTES 7th May 2003 ## 7th May 2003 ## Explanatory note (This note is not part of the Order) The Protocol scheduled to this Order makes certain alterations to the Convention set out in the Schedule to the Double Taxation Relief (Taxes on Income)(Canada) Order 1980 as amended by the Schedule to the Double Taxation Relief (Taxes on Income)(Canada)(No.2) Order 1980 as further amended by the Schedule to the Double Taxation Relief (Taxes on Income)(Canada) Order 1985. Article 1 of the Order provides for its citation. Article 2 makes a declaration as to the effect and content of the arrangements set out in the Protocol contained in Part I of the Schedule to the Order, and that it is expedient that those arrangements should have effect. Part 1 of the Schedule to the Order contains the Protocol further amending the Convention, and references to Article numbers cited below refer to the Articles of the Convention which are the subject of amendment. The Protocol expands the term “person” to include a trust, but not to include a partnership. The Protocol also amends the term “national” in relation to the United Kingdom (Article 3). The Protocol amends the rules for determining taxable profits when a company in one country is associated with a company in the other (Article 9). The Protocol amends the rate of tax imposed in the country of source on dividends beneficially owned by a resident of the other country. The rate imposed is not to exceed 5 per cent. of the gross amount of the dividends when the beneficial owner is a company which controls, directly or indirectly, at least 10 per cent. of the voting power in the company paying the dividends. In all other cases the rate shall not exceed 15 per cent. of the gross amount of the dividends (Article 10). The Protocol also removes the entitlement to the payment of tax credits on dividends, whose value had fallen to nil following changes to UK domestic law. Amendments are made to the Articles dealing with dividends, interest and royalties to provide effective measures against the abuse of these Articles (Articles 10, 11 and 12). There are further exemptions from source state taxation in relation to trade debts: interest arising in one country and beneficially owned by a resident of the other country is to be taxable only in the other country (Article 11). The types of royalties which may be paid free of withholding tax is extended (Article 12). The Protocol modifies the treatment of gains from the alienation of certain property and provides effective measures to counter abuse (Article 13). Amendments are made to the Article dealing with the taxation of pensions to counter a potential abuse in relation to lump sum pension payments (Article 17). The Protocol inserts a new Article to deal with other income not specified in the Convention (Article 20A). The Protocol amends the provisions for the elimination of double taxation in relation to Canada (Article 21). Other changes are made to the Articles dealing with Non-discrimination, Exchange of information (Articles 22 and 24) and Miscellaneous rules, particularly in relation to the treatment of contributions to a pension arrangement (Article 27). The Exchange of Notes set out in Part II of the Schedule to the Order clarifies the intended interpretation of particular aspects of the Protocol. The Protocol will enter into force when both countries have notified each other of the completion of their respective legislative procedures. The Protocol will take effect in the United Kingdom on or after 1st April in respect of corporation tax and on or after 6th April in respect of income tax and capital gains tax in the calendar year next following the date on which it enters into force. It will take effect in Canada in respect of tax withheld at source and in respect of other Canadian tax on or after 1st January in the calendar year next following the date on which the Protocol enters into force. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes. --- Source: https://www.legislation.gov.uk/ukdsi/2003/011046415X (the official version) Page: https://openlegislation.uk/draft-double-taxation-relief-taxes-on-income-canada-order-2003 Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.