Canada: Recent treaty shopping developments
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Canada: Recent treaty shopping developments

In part, as a consequence of the OECD's work on BEPS and its specific efforts to address treaty shopping, the Canadian government has been considering a range of possible measures that might be adopted to counteract treaty shopping.



Soraya Jamal

John Leopardi

Consideration of this issue has been within the context of the government's overriding intention to retain an internationally competitive tax system while, at the same time, addressing perceived limitations in, and abuses of, Canada's international tax system. Following a public consultation in 2013 but before the release by the OECD of the BEPS deliverable on treaty shopping, in its 2014 Canadian federal Budget, the government announced that a domestic rule to prevent treaty shopping, which would apply to all Canadian tax treaties, would be more effective than a treaty-based approach such as the US-style limitation on benefits (LoB) approach. The proposed domestic rule would apply broadly to permit the government to deny a treaty-based benefit if one of the main purposes for undertaking a relevant transaction was to obtain that benefit. However, after engaging in further public consultations, the government announced in August 2014 that it would await further work by the OECD and the G20 in relation to their BEPS initiative before moving ahead with its proposed domestic rule.

On September 16 2014, the OECD released a series of BEPS deliverables, including a report containing draft recommendations relating to preventing the abuse of tax treaties (Action 6 of the OECD plan). The report contains a draft recommendation that tax treaties should include a specific anti-abuse rule (based on the LoB provisions used in US treaties) along with a more general anti-abuse rule (based on the principal purposes of the transactions). The final version of the OECD's recommendations to address treaty shopping is due to be released in September 2015.

The government had initially indicated a clear desire to prevent treaty shopping with the use of a domestic rule. The OECD's September 2014 report confirms that countries should, at the very least, amend their tax treaties to address treaty shopping. It is unclear whether Canada will abandon the more subjective domestic anti-treaty shopping proposals released earlier this year or will adopt an approach that contains a combination of both domestic and objective treaty-based measures or hopefully, only treaty-based measures. Existing cross-border arrangements should be closely monitored given the existing uncertainty, including as to whether transitional relief, if any, will be provided to such arrangements.

Soraya Jamal ( and John Leopardi (

Blake, Cassels & Graydon

Tel: +1 604 631 3305; +1 514 982 5030


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