• Service: Tax, Corporate Tax
  • Type: Regulatory update
  • Date: 21/08/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Steven Economides

Steven Economides
Partner, International Corporate Tax

+61 2 9335 8876

Developments in Treaty Shopping – Canada takes action 

by Steven Economides, ASPAC Regional Leader GICT

On 15 August 2013, Canada issued a consultative paper on treaty shopping. As the tenth largest foreign investor into Canada, Australian companies will be interested in the outcomes of this review from both a Canadian investment perspective and as an indicator of future action by the global community. The paper is seeking comments by 13 December 2013.

The background to the paper lies in three Canadian tax cases (MIL Investments, Prevost Car Inc, and Velcro Canada).  Those cases adopted a form over substance rule in interpreting Canada’s DTAs Accordingly, absent any specific treaty rule (eg the LOB article in the Canada-US DTA), the test for Canadian treaty qualification requires satisfaction of the form requirements of the particular treaty.

Seven questions are set out in the consultative papers. The questions are based on three concepts:

  • Should Canada have a general treaty override or should each treaty be amended?
  • How should treaty shopping be defined?
  • Should the anti-treaty shopping rule be a general rule subject to a main purpose test or should the rule only cover specific circumstances?

Globally the approaches taken by various governments differ. The table below is an example.





Domestic general override provision


Domestic general override provision


Judicially created economic substance rule “fraude à la loi”


Specific anti-treaty shopping domestic override

United Kingdom

Specific rules contained in over 60 treaties

United States

Domestic anti-conduit rules (ie back to back arrangements), treaty based LOB rules, judicially created form over substance rules


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