(June 29, 2015)
The Canadian Department of Finance issued a news release announcing that the new Convention between Canada and New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income (Hereafter: the DTA) and related protocols entered into force on June 26, 2015. The DTA replaces the existing Canadian – New Zealand tax treaty stemming from May 13, 1980.
Based on Article 28 of the DTA the fact that the DTA entered into force on June 26, 2015 means that the DTA shall have effect:
(a) in New Zealand:
(i) in respect of withholding tax on income, profits or gains derived by a non-resident, for amounts paid or credited on or after August 1, 2015, and
(ii) in respect of other New Zealand tax, for any income year beginning on or after April 1, 2016.
(b) in Canada:
(i) in respect of tax withheld at the source on amounts paid or credited to non-residents, on or after August 1, 2015, and
(ii) in respect of other Canadian tax, for taxation years beginning on or after January 1, 2016.
Below we will mention some of the paragraphs included in the DTA that we ourselves find interesting.
According to paragraph 1 of Article 2 (“Taxes Covered”) of the DTA the taxes to which the Convention shall apply are:
(a) In the case of Canada, the taxes imposed by the Government of Canada under the Income Tax Act;
(b) In the case of New Zealand, the income tax.
With respect to permanent establishments paragraph 3 of Article 5 (“Permanent Establishment”) determines the following:
“A building site, or a construction, installation or assembly project, or supervisory activities in connection with that building site or construction, installation or assembly project, constitutes a permanent establishment if it lasts more than 12 months.”
Paragraph 4 of Article 5 (“Permanent Establishment”) determines the following:
“An enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if, for more than 183 days in any 12-month period:
(a) it carries on activities which consist of, or which are connected with, the exploration for or exploitation of natural resources, including standing timber, situated in that State; or
(b) it operates substantial equipment in that State.”
And paragraph 5 of Article 5 (“Permanent Establishment”) determines the following:
“Notwithstanding the provisions of paragraphs 1, 2, and 3, where an enterprise of a Contracting State performs services in the other Contracting State:
(a) through an individual who is present in that other State for a period or periods exceeding in the aggregate 183 days in any 12-month period, and more than 50 per cent of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from the services performed in that other State through that individual; or
(b) for a period or periods exceeding in the aggregate 183 days in any 12‑month period, and these services are performed for the same project or for connected projects through one or more individuals who are present and performing such services in that other State,
the activities carried on in that other State in performing these services shall be deemed to be carried on through a permanent establishment of the enterprise situated in that other State, unless these services are limited to those mentioned in paragraph 7 which, if performed through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph. For the purposes of this paragraph, services performed by an individual on behalf of one enterprise shall not be considered to be performed by another enterprise through that individual unless that other enterprise supervises, directs or controls the manner in which these services are performed by the individual.”
Paragraph 6 of Article 5 (“Permanent Establishment”) contains the following anti-abuse clause:
“For the purposes of determining the duration of activities under paragraphs 3 and 4, the period during which activities are carried on in a Contracting State by an enterprise associated with another enterprise shall be aggregated with the period during which activities are carried on by the enterprise with which it is associated if the first-mentioned activities are connected with the activities carried on in that State by the last-mentioned enterprise, provided that any period during which two or more associated enterprises are carrying on concurrent activities is counted only once. An enterprise shall be deemed to be associated with another enterprise if one is controlled directly or indirectly by the other, or if both are controlled directly or indirectly by a third person or persons.”
Under paragraph 2 of Article 10 (“Dividends”) dividend withholding taxes that a Source State is allowed to withhold over dividend payments is limited as follows:
(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company that holds directly at least 10 per cent of the voting power in the company paying the dividends; and
(b) 15 per cent of the gross amount of the dividends, in all other cases.
Paragraph 9 of Article 10 (“Dividends”) contains the following anti-abuse clause:
“No relief shall be available under this Article if it is the main purpose or one of the main purposes of any person concerned with an assignment of the dividends, or with the creation or assignment of the shares or other rights in respect of which the dividend is paid, or the establishment, acquisition or maintenance of the company that is the beneficial owner of the dividends and the conduct of its operations, to take advantage of this Article. In any case where a Contracting State intends to apply this paragraph, the competent authority of that State shall consult with the competent authority of the other Contracting State.”
With respect to interest withholding taxes paragraph 2 of Article 11 (“Interest”) determines the following:
“However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.”
Some of our readers might also find paragraph 4 and 5 of Article 11 (“Interest”) interesting. Paragraph 4 of Article 11 reads as follows:
“Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State may not be taxed in the first-mentioned State if the interest is derived by a financial institution which is unrelated to and dealing wholly independently with the payer. For the purposes of this Article, the term “financial institution” means a bank or other enterprise substantially deriving its profits by raising debt finance in the financial markets or by taking deposits at interest and using those funds in carrying on a business of providing finance.”
And paragraph 5 of Article 11 reads as follows:
“Notwithstanding paragraph 4, interest referred to in that paragraph may be taxed in the State in which it arises at a rate not exceeding 10 per cent of the gross amount of the interest if:
(a) in the case of interest arising in New Zealand, it is paid by a person that has not paid approved issuer levy in respect of the interest. This subparagraph (a) shall not apply if New Zealand does not have an approved issuer levy, or the payer of the interest is not eligible to elect to pay the approved issuer levy, or if the rate of the approved issuer levy payable in respect of such interest exceeds 2 per cent of the gross amount of the interest. For the purposes of this Article, “approved issuer levy” includes any identical or substantially similar charge payable by the payer of interest arising in New Zealand enacted after the date of this Convention in place of approved issuer levy;
(b) it is paid as part of an arrangement involving back-to-back loans or other arrangement that is economically equivalent and intended to have a similar effect to back-to-back loans; or
(c) all or any portion of the interest is paid or payable on an obligation that is contingent or dependent on the use of or production from property or is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation.”
Paragraph 10 of Article 11 (“Interest”) contains an anti-abuse clause which is similar as the one included in Article 10. The anti-abuse clause included in paragraph 10 of Article 11 (“Interest”) reads as follows:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the assignment of the interest, the creation or assignment of the debt-claim or other rights in respect of which the interest is paid, or the establishment, acquisition or maintenance of the person which is the beneficial owner of the interest or the conduct of its operations, to take advantage of this Article. In any case where a Contracting State intends to apply this paragraph, the competent authority of that State shall consult with the competent authority of the other Contracting State.”
With respect to royalties withholding taxes paragraph 2 of Article 12 (“Royalties”) determines the following:
“However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed:
(a) 5 per cent of the gross amount of the royalties if they are:
(i) copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other artistic work (excluding royalties in respect of motion picture films and royalties in respect of works on film, videotape or other means of reproduction for use in connection with television broadcasting), or
(ii) royalties for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalty provided in connection with a rental or franchise agreement);
(b) 10 per cent of the gross amount of the royalties in all other cases.”
Like in the Articles on Dividends and Interest also paragraph 7 of Article 12 (“Royalties”) contains an anti-abuse clause. The anti-abuse clause as included in paragraph 7 of Article 12 reads as follows:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with an assignment of the royalties, or with the creation or assignment of the rights in respect of which the royalties are paid or credited, to take advantage of this Article by means of that creation or assignment. In any case where a Contracting State intends to apply this paragraph, the competent authority of that State shall consult with the competent authority of the other Contracting State.”
Other interesting articles are the Article on a Mutual Agreement Procedure (Article 23), the Article regarding the Exchange of Information in tax matters (Article 24) and the article regarding the Assistance in the Collection of Taxes (Article 25).
Click here to be forwarded to the text of the new Convention between Canada and New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and the text of the First Protocol, as available on the website of the Canadian Department of Finance.
Click here to be forwarded to the text of the Second Protocol To The Convention Between New Zealand And Canada For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Income, as available on the website of the Canadian Department of Finance.
Click here if you are looking for the New Zealand – Canadian tax treaty from 1980. When you subsequently click on Canada or New Zealand you will be forwarded to a governmental website of the respective country where it published the texts of the DTAs it has concluded (not only the Canadian – New Zealand DTA, but more DTAs). Remember: International Tax Plaza DTAs section is the fastest way to the texts of many DTAs!
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