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Cablegate: Canada Completes Work On Bilateral Tax Treaty

VZCZCXRO5119
PP RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #2278 3522148
ZNR UUUUU ZZH
P 182148Z DEC 07 ZDK
FM AMEMBASSY OTTAWA
TO RUEATRS/DEPT OF TREASURY WASH DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 7044
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS OTTAWA 002278

SIPDIS

SIPDIS

STATE PASS WHA/CAN, EEB/IFD, AND L/EEB
TREASURY FOR ALICE FAIBISHENKO, JOHN HARRINGTON, AND DAVID
SOTOS

E.O. 12958: N/A
TAGS: EFIN ECON ETRD CA US
SUBJECT: CANADA COMPLETES WORK ON BILATERAL TAX TREATY
PROTOCOL


1. ON DECEMBER 14, FINANCE MINISTER FLAHERTY ANNOUNCED THAT,
AS A RESULT OF BILL S-2 RECEIVING ROYAL ASSENT, THE CANADIAN
GOVERNMENT HAS NOW COMPLETED THE STEPS REQUIRED IN CANADA TO
GIVE EFFECT TO THE FIFTH PROTOCOL TO THE CANADA-UNITED STATES
INCOME TAX CONVENTION. THE PROTOCOL WILL COME INTO EFFECT
ONCE IT HAS BEEN RATIFIED BY THE UNITED STATES AND THE TWO
COUNTRIES HAVE FORMALLY NOTIFIED EACH OTHER THAT THEIR
PROCEDURES ARE COMPLETE.

2. "MODERNIZING THIS LONG-STANDING TREATY WILL ENCOURAGE
FURTHER TRADE AND INVESTMENT IN CANADA AND THE UNITED STATES
AND HELP US TO BETTER COMPETE IN THE GLOBAL ECONOMY,"
MINISTER FLAHERTY TOLD THE PRESS. "I AM HOPEFUL THAT THE
U.S. WILL SOON RATIFY THE PROTOCOL SO THAT INDIVIDUALS AND
BUSINESSES ON BOTH SIDES OF THE BORDER, INCLUDING
MANUFACTURERS, CAN REALIZE THAT SIGNIFICANT BENEFITS OF THE
UPDATED TREATY." HE ADDED THAT "IN THIS HIGHLY COMPETITIVE
GLOBAL ECONOMY, WE NEED TO CONTINUALLY EXPLORE WAYS TO GROW,
EXPAND, AND COMPETE. FURTHER IMPROVING AND REFINING OUR
RELATIONSHIP WITH THE UNITED STATES, OUR LARGEST TRADING
PARTNER, IS ESSENTIAL. THE FIFTH PROTOCOL TO THE CANADA-U.S.
TAX TREATY IS ABOUT LOOKING AHEAD AND BEING INNOVATIVE.

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3. THE AGREEMENT TO MODIFY THE 1980 INCOME TAX CONVENTION
WAS SIGNED ON SEPTEMBER 21 BY MINISTER FLAHERTY AND TREASURY
SECRETARY PAULSON. ACCORDING TO THE FINANCE CANADA PRESS

SIPDIS
RELEASE, KEY MEASURES OF THE FIFTH PROTOCOL INCLUDE:

-- ELIMINATING WITHHOLDING TAXES ON CROSS-BORDER INTEREST
PAYMENTS;
-- EXTENDING TREATY BENEFITS TO LIMITED LIABILITY COMPANIES;
-- ALLOWING TAXPAYERS TO REQUIRE THAT CERTAIN KEY DOUBLE
TAXATION ISSUES, SUCH AS TRANSFER PRICING, BE SETTLED THROUGH
ARBITRATION;
-- ENSURING THAT THERE IS NO DOUBLE TAXATION ON EMIGRANTS'
GAINS;
-- GIVING MUTUAL TAX RECOGNITION OF PENSION CONTRIBUTIONS; AND
-- CLARIFYING HOW STOCK OPTIONS ARE TAXED.

4. THE FULL TEXT OF THE PROTOCOL, TWO DIPLOMATIC NOTES
SETTING OUT MORE TECHNICAL ASPECTS OF THE AGREEMENT AND A
BACKGROUNDER PREPARED BY FINANCE CANADA CAN BE VIEWED ON THE
FINANCE CANADA WEBSITE (WWW.FIN.GC.CA).

Visit Canada,s Economy and Environment Forum at
http://www.intelink.gov/communities/state/can ada

WILKINS

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