Canada's New Tax Treaty with Israel Includes Anti-Treaty Shopping Measure

Canada-Israel Treaty — New Anti-Treaty Shopping Measure

Finance recently announced that Canada has signed a tax convention with Israel.

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The treaty, signed September 21, 2016, includes provisions that reflect the OECD standards for the exchange of tax information. This new treaty with Israel will limit the rate of withholding tax to:

  • 5% for dividends paid to a company that holds directly (or indirectly) at least 25% of the capital of the company that pays the dividends 
  • 15% for dividends paid in all other cases 
  • 10% for payments of interest and royalties.

As well as changing withholding rates, the treaty added the following key provisions:

  • A "one of the main purposes" test in the dividend, interest, royalties and capital gains articles as an anti-treaty shopping measure 
  • A new reference in Article 13(4) on taxation of capital gains to a one-year "look back" or holding period test, rather than a point-in-time test, in order to determine whether shares or partnership and trust interests derive more than 50% of their value directly or indirectly from immovable property 
  • New Article 25, which states that nothing in the convention shall prevent a contracting state from applying provisions of its domestic laws designed to prevent the avoidance and evasion of taxes. 

The treaty will enter into force once Canada and Israel have notified each other that the procedures required by their laws for bringing the treaty into force have been completed. In Canada, the treaty will apply to taxes withheld at source on amounts paid or credited to non-residents, beginning on January 1 of the first calendar year after the treaty has entered into force. For other taxes, it will apply for taxation years beginning on or after January 1 of the calendar year after the calendar year in which the Convention has entered into force.

Once the treaty comes into force, it will replace the existing 1975 treaty.

For more information, contact your KPMG adviser.

Information is current to October 18, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour 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 upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

© 2017 KPMG LLP, a Canada limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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