close
Share with your friends

Canada: Possible withholding tax changes with ratification of MLI

Canada: Possible withholding tax changes

Canadian taxpayers need to consider whether their withholding tax obligations will change now that Canada has ratified the multilateral instrument (MLI).

1000

Related content

The OECD developed the MLI as part of Action 15 of the base erosion and profit shifting (BEPS) initiative to modify existing bilateral treaties to implement BEPS measures. The MLI is intended to streamline the implementation of the tax treaty-related measures without the need to individually renegotiate each treaty.

 With ratification of the MLI, Canadian taxpayers may need to meet new conditions starting 1 January 2020 to benefit from the lower withholding tax rate under affected treaties when paying or receiving items such as interest, dividends, and royalties. In addition, Canadian residents also will need to consider how the MLI may affect the different income tax treaties—in some instances, certain optional MLI provisions could apply depending on whether both Canada and its treaty partner have adopted the particular provision.

 As a result of this upcoming change, Canadian taxpayers need to consider if they meet the new principal purpose test in the MLI to qualify for the lower withholding tax rate available under certain treaties.

In addition, Canadian corporations that receive foreign dividends may also be required to meet a new 365-day holding period for shares in order to have access to the reduced withholding tax rates under a treaty, or confirm that a non-resident shareholder meets the holding period test before it can apply a treaty-reduced withholding tax rate to dividends that it pays to that shareholder. Those corporations that determine that their withholding tax obligations will change also need to consider how their financial statements may be affected by this change.


Read a November 2019 report [PDF 206 KB] prepared by the KPMG member firm in Canada

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal