Businesses applaud elimination of cross-border withholding tax

Canada and the United States have signed a new treaty designed to reduce barriers to cross-border activities. The treaty eliminates the withholding tax on cross-border interest payments made by borrowers in one country to lenders in the other, and updates tax rules on pensions for workers who cross the U.S. - Canada border, according to Treasury Secretary Henry M. Paulson, Jr.

The new treaty is seen as providing the most benefit to Canadian companies that borrow from U.S. banks. Many U.S. lenders require Canadian borrowers to "gross up" their payment so that they pay the full interest plus the withholding tax that the banks are required to pay to the Canada Revenue Agency. Michael Friedman, a tax lawyer with Toronto-based McMillan Binch Mendelsohn LLP stated, "The cost of obtaining capital will be reduced because borrowers won't face the demands to gross up and the ability to borrow capital will be increased."

Included in the treaty is a provision for arbitration of unresolved double-taxation cases. Also there is a provision that extends treaty benefits to limited liability companies (LLCs). According to McMillan Binch Mendelsohn, an LLC will generally be entitled to take advantage of reduced withholding tax rates set out in the Treaty in respect of certain types of payments (e.g. interest, dividends).

The treaty also provides for mutual tax recognition of pension contributions and clarification of how stock options are to be taxed.

The treaty will enter into force once it has been ratified by both the Canadian and U.S. governments. The treaty is the largest bilateral trade agreement in the world, and Canada is the U.S.'s largest trading partner.

You can read the complete amendments to the U.S. Canada treaty.

You may like these other stories...

School tax breaks get House support as Democrats objectRichard Rubin of Bloomberg reported that the House of Representatives on Thursday voted to expand and simplify tax breaks for education as Republicans continue to pass...
Many senior US tax professionals believe that a streamlined audit process will be the top benefit resulting from the IRS Transfer Pricing Audit Roadmap, a new toolkit organized around a notional 24-month audit timeline,...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.