Canada's Evolving Tax Treaty Policy toward Low-Income Countries

Document Type

Book Chapter

Publication Date



Tax Treaties, International Tax, Source Taxation, Tax Policy, Canada


Relative to at least some high-income countries, Canada has been willing to negotiate tax treaties that leave greater jurisdiction to tax (ie. more source jurisdiction) to low-income countries in its tax treaties. Nevertheless, Canada's tax treaty policy has not been overwhelmingly generous. This essay takes as its starting point Alex Easson's 1988 paper, "The Evolution of Canada's Tax Treaty Policy Since the Royal Commission on Taxation." Focusing on the evolution of Canada's tax treaty policy since 1988, the essay examines three aspects of Canada's tax treaties that might increase the scope for source-based taxation by low-income countries. First, it examines the ways in which Canada has expanded the scope for source taxation of business income: for example, by lowing the threshold for taxation of business profits, expanding the scope of what profit should be allocated to an enterprise, allowing the taxation of technical or management fees with minimal connection to the source state, and permitting the taxation of gains on the alienation of real property. Second, those treaty provisions that limit the withholding tax rates on passive investment income earned in the source country, including the withholding tax rates on payments of interest, dividends, and royalties, are reviewed. Third, the accommodations that Canada has made since 1988 through tax sparing provisions for tax incentives enacted in low-income countries are noted. The piece concludes with some reflections Canada's latest protocol with the United States, underlining what it might signal for Canada's future tax treaties with low-income countries.