Canada–United States Tax Convention Act, 1984 — C-10.7 ARTICLE XXIX A
ons that are residents of that other State), but only if that trade or business is substantial in relation to the activity carried on in that other State giving rise to the income in respect of which benefits provided under this Convention by that other State are claimed. 4 A company that is a resident of a Contracting State shall also be entitled to the benefits of Articles X (Dividends), XI (Interest) and XII (Royalties) if: (a) Its shares that represent more than 90 percent of the aggregate vote and value of all of its shares and at least 50 percent of the vote and value of any disproportionate class of shares (in neither case including debt substitute shares) are owned, directly or indirectly, by persons each of whom is a qualifying person or a person who: (i) Is a resident of a country with which the other Contracting State has a comprehensive income tax convention and is entitled to all of the benefits provided by that other State under that convention; (ii) Would qualify for benefits under paragraphs 2 or 3 if that person were a resident of the first-mentioned State (and, for the purposes of paragraph 3, if the business it carried on in the country of which it is a resident were carried on by it in the first-mentioned State); and (iii) Would be entitled to a rate of tax in the other Contracting State under the convention between that person’s country of residence and that other State, in respect of the particular class of income for which benefits are being claimed under this Convention, that is at least as low as the rate applicable under this Convention; and (b) The amount of the expenses deductible from gross income (as determined in the company’s State of residence) that are paid or payable by the company for its preceding fiscal period (or, in the case of its first fiscal period, that period) directly or indirectly to persons that are not qualifying persons is less than 50 percent of the company’s gross income for that period. 5 For the purposes of this Article, (a) The term debt substitute share means: (i) A share described in paragraph (e) of the definition term preferred share in the Income Tax Act , as it may be amended from time to time without changing the general principle thereof; and (ii) Such other type of share as may be agreed upon by the competent authorities of the Contracting States. (b) The term disproportionate class of shares means any class of shares of a company resident in one of the Contracting States that entitles the shareholder to disproportionately higher participation, through dividends, redemption payments or otherwise, in the earnings generated in the other State by particular assets or activities of the company; (c) The term disproportionate interest in a trust means any interest in a trust resident in one of the Contracting States that entitles the interest holder to disproportionately higher participation in, or claim to, the earnings generated in the other State by particular assets or activities of the trust; (d) The term not-for-profit organization of a Contracting State means an entity created or established in that State and that is, by reason of its not-for-profit status, generally exempt from income taxation in that State, and includes a private foundation, charity, trade union, trade association or similar organization; (e) The term principal class of shares of a company means the ordinary or common shares of the company, provided that such class of shares represents the majority of the voting power and value of the company. If no single class of ordinary or common shares represents the majority of the aggregate voting power and value of the company, the principal class of shares are those classes that in the aggregate represent a majority of the aggregate voting power and value of the company; and (f) The term recognized stock exchange means: (i) The NASDAQ System owned by the National Association of Securities Dealers, Inc. and any stock exchange registered with the Securit