U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1 

69–112 

" ! SENATE 110TH CONGRESS

2d Session 

TREATY DOC. 

2008

110–15 

PROTOCOL AMENDING 1980 TAX CONVENTION WITH 

CANADA 

MESSAGE 

FROM

THE PRESIDENT OF THE UNITED STATES 

TRANSMITTING

PROTOCOL AMENDING THE CONVENTION BETWEEN THE UNITED 

STATES OF AMERICA AND CANADA WITH RESPECT TO TAXES 

ON INCOME AND ON CAPITAL DONE AT WASHINGTON ON SEPTEMBER 26, 1980, AS AMENDED BY THE PROTOCOLS DONE ON 

JUNE 14, 1983, MARCH 28, 1984, MARCH 17, 1995, AND JULY 29, 

1997, SIGNED ON SEPTEMBER 21, 2007, AT CHELSEA (THE ‘‘PROPOSED PROTOCOL’’) 

MARCH 13, 2008.—Treaty was read the first time, and together with the 

accompanying papers, referred to the Committee on Foreign Relations 

and ordered to be printed for the use of the Senate 


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LETTER OF TRANSMITTAL 

THE WHITE HOUSE, March 13, 2008 

To the Senate of the United States: 

I transmit herewith, for Senate advice and consent to ratification, the Protocol Amending the Convention Between the United 

States of America and Canada with Respect to Taxes on Income 

and on Capital done at Washington on September 26, 1980, as 

Amended by the Protocols done on June 14, 1983, March 28, 1984, 

March 17, 1995, and July 29, 1997, signed on September 21, 2007, 

at Chelsea (the ‘‘proposed Protocol’’). The proposed Protocol would 

amend the existing income tax Convention between the United 

States and Canada that was concluded in 1980, as amended by 

prior protocols (the ‘‘existing Treaty’’). Also transmitted for the information of the Senate is the report of the Department of State 

with respect to the proposed Protocol. 

The proposed Protocol would eliminate withholding taxes on 

cross-border interest payments. In addition, the proposed Protocol 

would coordinate the tax treatment of contributions to, and other 

benefits of, pension funds for cross-border workers. The proposed 

Protocol also includes provisions related to the taxation of permanent establishments, so-called dual-resident corporations, income 

derived through certain entities that are considered fiscally transparent, and former U.S. citizens and long-term residents. The proposed Protocol further strengthens the existing Treaty’s provisions 

that prevent the Treaty’s inappropriate use by third-country residents. The proposed Protocol also provides for mandatory resolution of certain cases before the competent authorities. 

I recommend that the Senate give early and favorable consideration to the proposed Protocol and give its advice and consent to 

ratification. 

GEORGE W. BUSH


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LETTER OF SUBMITTAL 

DEPARTMENT OF STATE, Washington, DC February 29, 2008. 

The PRESIDENT: 

The White House. 

THE PRESIDENT: I have the honor to submit to you, with a view 

to its transmission to the Senate for advice and consent to ratification, the Protocol Amending the Convention Between the United 

States of America and Canada with Respect to Taxes on Income 

and on Capital Done at Washington on 26 September 1980, as 

Amended by the Protocols Done on 14 June 1983, 28 March 1984, 

17 March 1995, and 29 July 1997, signed on September 21, 2007, 

at Chelsea (the ‘‘proposed Protocol’’) and related exchanges of notes. 

The proposed Protocol would amend the existing income tax Convention between the United States and Canada which was concluded in 1980, as amended by prior protocols (the ‘‘existing Treaty’’). 

The proposed Protocol would eliminate withholding taxes on 

cross-border interest payments. In addition, the proposed Protocol 

would coordinate the tax treatment of contributions to, and other 

benefits of, pension funds for cross-border workers. The proposed 

Protocol also includes provisions related to the taxation of permanent establishments, so-called dual-resident corporations, income 

derived through certain entities that are considered fiscally transparent, and former U.S. citizens and long-term residents. The proposed Protocol further strengthens the existing Treaty’s provisions 

that prevent the treaty’s inappropriate use by third-country residents. The proposed Protocol also provides for mandatory resolution of certain cases before the competent authorities. 

The exchanges of notes confirm certain understandings with respect to application of the Protocol. 

The proposed Protocol was concluded in recognition of the importance of the United States’ economic relations with Canada. The 

Department of the Treasury and the Department of State cooperated in the negotiation of the proposed Protocol. The Protocol and 

the related exchanges of notes have the full approval of both Departments. 

Respectfully submitted. 

CONDOLEEZZA RICE. 

Enclosure: Key Provisions of the U.S.-Canada Protocol. 

KEY PROVISIONS OF THE U.S.-CANADA PROTOCOL

The attached Protocol with Canada (the ‘‘proposed Protocol’’) is 

the fifth protocol to the income tax Convention signed in 1980 and 


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amended by prior protocols in 1983, 1984, 1995, and 1997 (‘‘existing Treaty’’). It was negotiated to address specific issues that have 

arisen in our tax treaty relations and changes in each country’s domestic law and tax treaty policy, and to further reduce barriers to 

cross-border investment between our two countries. The exchanges 

of notes confirm certain understandings with respect to application 

of the Protocol. The proposed Protocol would incorporate provisions 

that are generally consistent with the U.S. Model tax treaty. However, there are several provisions of the proposed Protocol that deviate from the U.S. Model tax treaty to reflect the close economic 

and political relationship the United States shares with Canada. 

One of the most important aspects of the proposed Protocol relates to the taxation of cross-border interest payments. The proposed Protocol provides for the elimination of withholding taxes on 

cross-border interest payments. This provision would be effective 

for interest paid to unrelated parties on the first day of January 

of the year in which the proposed Protocol enters into force, and 

it would be phased in for interest paid to related persons over a 

three-year period. Eliminating withholding taxes on cross-border 

interest payments is consistent with an overall view that investment income should be taxed by the country of residence, not the 

country of source. 

The proposed Protocol also addresses the issue of so-called ‘‘dualresident corporations.’’ In addition to revising a provision of the existing Treaty relating to the residence of such companies, the proposed Protocol generally provides that the competent authorities of 

the United States and Canada shall endeavor to reach agreement 

on the treatment of such companies for purposes of the treaty. 

The proposed Protocol also contains a provision that assures that 

a U.S. person generally may obtain the benefits of the treaty when 

that person derives income through an entity that is considered by 

the United States to be fiscally transparent (i.e., able to pass 

through the tax consequences of its activities to its owners) unless 

the entity is a Canadian entity and is not treated by Canada as fiscally transparent. 

The existing Treaty generally follows the standard rules for taxation by the source country of the business profits of a resident of 

the other country. The source country’s right to tax such profits is 

generally limited to cases in which the profits are attributable to 

a permanent establishment located in that country. The proposed 

Protocol would add two provisions related to the taxation of permanent establishments. First, the proposed Protocol, consistent with 

the U.S. Model tax treaty, contains provisions that recognize the 

‘‘authorized OECD approach’’ to attributing profits to a permanent 

establishment. Second, the proposed Protocol includes a special 

rule for certain permanent services not otherwise considered to be 

provided through a permanent establishment. 

Further, the proposed Protocol would update the existing Treaty 

to reflect current U.S. treaty policy with respect to several items, 

including (i) reduced withholding taxes on dividends paid from a 

real estate investment trust, (ii) the U.S. taxation of former citizens 

and long-term residents, and (iii) the coordination of the tax treatment of contributions to and accretions of income to pension funds 

for cross-border workers. The proposed Protocol also would update 


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the existing Treaty’s provisions preventing so-called treaty shopping, which is the inappropriate use of a tax treaty by third-country residents. 

The proposed Protocol would update the provisions of the existing Treaty with respect to the mutual agreement procedure by incorporating mandatory resolution of certain cases that the competent authorities of the United States and Canada are unable to 

resolve within a specified period of time. 

The Parties shall notify each other in writing, through diplomatic 

channels, when their respective applicable procedures for ratification have been satisfied. The proposed Protocol will enter into force 

upon the date of the later of the notifications or January l, 2008, 

whichever is later. It will generally have effect, with respect to 

taxes withheld at source, for amounts paid or credited on or after 

the first day of the second month that begins after the date the 

proposed Protocol enters into force. With respect to other taxes, it 

will generally have effect for taxable years that begin after the calendar year in which the proposed Protocol enters into force. Certain provisions will be phased in or have a delayed effective date, 

and certain provisions will apply retroactively, consistent with 

prior Treasury Department public statements regarding specific 

issues. 


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