Opinion ID: 484309
Heading Depth: 2
Heading Rank: 1

Heading: The Applicable Treaty

Text: 5 The taxpayers argue that the treaty of 1942 does not apply to these summonses. They point out that the Convention with Respect to Taxes on Income and on Capital, Sept. 26, 1980, United States-Canada, reprinted in 1 Tax Treaties (CCH) p 1301 (1984) (1980 treaty), became effective on August 16, 1984, after the tax years in question and after the issuance of the summonses, but before the district court entered enforcement orders in either case. Article XXX of the 1980 treaty determines when its provisions enter into force:2. The Convention shall enter into force upon the exchange of instruments of ratification and, subject to the provisions of paragraph 3, its provisions shall have effect: 6 (a) For tax withheld at the source on income referred to in Articles X (Dividends), XI (Interest), XII (Royalties) and XVIII (Pensions and Annuities), with respect to amounts paid or credited on or after the first day of the second month next following the date on which the Convention enters into force; 7 (b) For other taxes, with respect to taxable years beginning on or after the first day of January next following the date on which the Convention enters into force; and 8 (c) Notwithstanding the provisions of subparagraph (b), for the taxes covered by paragraph 4 of Article XXIX (Miscellaneous Rules) with respect to all taxable years referred to in that paragraph. 9 3..... 10 4. Subject to the provisions of paragraph 5, the 1942 Convention shall cease to have effect for taxes for which this Convention has effect in accordance with the provisions of paragraph 2. 11 The government offers two arguments for application of the 1942 treaty. First, it contends that because the summonses address tax liability for 1980-82, subsection 2(b) controls when Article XXVII, the exchange of information provision, enters into force. This subsection states that, for other taxes, the convention goes into effect on the first of January immediately following the exchange of the instruments of ratification. They were exchanged on August 16, 1984. Because Article XXVII is not explicitly mentioned in subsections 2(a) or 2(c), the government asserts that it falls into the category of other taxes. Accordingly, the 1980 treaty only applies to summonses investigating tax liability for years commencing on or after January 1, 1985. 12 Alternatively, if the effective date of Article XXVII is determined by section 2 and not subsection 2(b) (i.e., if the 1980 treaty applies to any request for information made after August 16, 1984, regardless of the tax year to which the information pertains), the government notes that these requests were made on January 3, 1984, the summonses were issued on April 2, 1984, and the petitions to quash filed on April 20, 1984; all of these events preceded the exchange of instruments. The taxpayers argue that the determinative dates should be those on which the enforcement orders were issued, March 25, 1985, and December 11, 1985, respectively. 13 We review this question of treaty interpretation, one of first impression, de novo. We find the government's second argument persuasive and therefore need not address its first. The information exchange provisions of both treaties set out when the United States or Canada may honor the other's requests for information. The date of the request or, at the latest, the date of the decision to honor it should determine which treaty applies. Because these dates are prior to August 16, 1984, we look to the 1942 treaty in reviewing the district court's order granting enforcement of these summonses.