Conducting Business with Hybrid Tax Entities Between the United States and Canada: The Impact of New Paragraph 7 to Article IV of the U.S.-Canada Income Tax Treaty


The Fifth Protocol (the "Protocol") to the U.S.-Canada Income Tax Treaty ("Treaty") entered into force on December 15, 2008. The Protocol is generally effective for tax years beginning on or after January 1, 2009; however, certain provisions of the Protocol have a delayed effective date, including Paragraph 7 of Article IV, which is effective beginning January 1, 2010.

The Protocol makes significant changes to the tax treatment of hybrid tax entities used to conduct cross-border activities. These changes to the Treaty necessitate a review and reassessment of cross-border structures used by U.S. persons to conduct business or make investments in Canada.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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