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Canada and U.S. Agree to Adopt OECD's Business Profits PE Guidance - by Rob Davis 

Global Tax Adviser


July 24, 2012


Rob Davis
Toronto, Transfer Pricing


The competent authorities of Canada and the United States have entered into a new agreement on the treatment of business profits under the Canada-U.S. tax treaty to ensure consistency with the Organisation for Economic Cooperation and Development's (OECD) Report on the Attribution of Profits to Permanent Establishments. In Canada and the United States, authority for resolving tax disputes is delegated to senior CRA and IRS officials who are known in both countries as the competent authority.

Competent authorities' agreement
The competent authorities of the United States and Canada have now agreed that Article VII of the treaty, "Business Profits" is to be interpreted to ensure consistency with the conclusions of the OECD's report. Further, all other provisions of the treaty that require a determination of whether an asset or amount is effectively connected or attributable to a permanent establishment must also be interpreted consistently with the report.


The competent authorities also note that they understand that relief of double taxation continues to be subject to the provisions and limitations of each country's domestic law, as provided in Article XXIV, "Elimination of Double Taxation".


This agreement generally applies to taxable years that begin on or after January 1, 2012; however, a taxpayer may choose to apply the entirety of this agreement in both countries for all taxable years beginning after December 31, 2008.


For more information, contact your KPMG adviser.

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