The Government of Canada and the Government of the State of Kuwait, desiring to promote their mutual economic relations by removing fiscal obstacles, through the conclusion of an agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have agreed as follows:

Article 1
Personal Scope

This Agreement shall apply to persons who are residents of one or both of the Contracting States.

Article 2
Taxes Covered

• 1. This Agreement shall apply to taxes on income and on capital imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.

• 2. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains from the alienation of movable or immovable property, as well as taxes on capital appreciation.

• 3. The existing taxes to which this Agreement shall apply are in particular:

  • a) in the case of Canada: the taxes on income and on capital imposed by the Government of Canada (hereinafter referred to as “Canadian tax”);

  • b) in the case of Kuwait:

    • (1) the corporate income tax;

    • (2) the contribution from the net profits of the Kuwaiti shareholding companies payable to the Kuwait Foundation for Advancement of Science (KFAS); and

    • (3) the Zakat;

  (hereinafter referred to as “Kuwaiti tax”).

• 4. This Agreement shall apply also to any identical or substantially similar taxes, which are imposed after the date of signature of this Agreement in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial changes, which have been made in their respective taxation laws.

Article 3
General Definitions

• 1. For the purposes of this Agreement, unless the context otherwise requires:

  • a) the term “Canada” used in a geographical sense, means the territory of Canada, including:

    • (1) any area beyond the territorial seas of Canada which, in accordance with international law and the laws of Canada, is an area within which Canada may exercise rights with respect to the seabed and subsoil and their natural resources;

    • (2) the seas and airspace above every area referred to in clause (1), in respect of any activity carried on in connection with the exploration for or the exploitation of the natural resources referred to therein;

  • b) the term “Kuwait” means the territory of the State of Kuwait including any area beyond the territorial sea which in accordance with international law has been or may hereafter be designated, under the laws of Kuwait, as an area over which Kuwait may exercise sovereign rights or jurisdiction;

  • c) the terms “a Contracting State” and “the other Contracting State” mean Canada or Kuwait as the context requires;

  • d) the term “person” includes an individual, a trust, a company and other body of persons;

  • e) the term “national” means:

    • (1) in respect of Canada: any Canadian within the meaning of the laws of Canada, and any legal person, partnership or association deriving its status as such from the laws in force in Canada;

    • (2) in respect of Kuwait: any individual possessing the Kuwaiti nationality, and any legal person, partnership, association or other entity deriving its status as such from the laws in force in Kuwait;

  • f) the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes;

  • g) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

  • h) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;

  • i) the term “tax” means Canadian tax or Kuwaiti tax, as the context requires;

  • j) the term “competent authority” means:

    • (1) in Canada: the Minister of National Revenue or the Minister’s authorized representative;

    • (2) in Kuwait: the Minister of Finance or the Minister’s authorized representative;

  • k) the term “fixed base” includes a permanent place for the purpose of performing professional services or other activities of an independent nature.

• 2. As regards the application of this Agreement by a Contracting State any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that Contracting State concerning the taxes to which this Agreement applies.

Article 4
Resident

• 1. For the purposes of this Agreement the term “resident of a Contracting State” means:

  • a) in the case of Canada: any person who, under the tax law of Canada is liable to tax therein by reason of the person’s domicile, residence, place of management or any other criterion of a similar nature, but does not include any person who is liable to tax in Canada in respect only of income from sources in Canada;

  • b) in the case of Kuwait:

    • (1) an individual who is a Kuwaiti national, provided that the individual has a substantial presence, permanent home or habitual abode in Kuwait and that the individual’s personal and economic relations are closer to Kuwait than to any other third state; and

    • (2) a company which is incorporated in Kuwait.

• 2. For the purposes of paragraph 1, the term “resident of a Contracting State” shall include:

  • a) the Government of that Contracting State or a political subdivision or local authority thereof; and

  • b) any corporation, Central Bank, fund, authority, foundation, commission, agency or other entity that was established under the law of that Contracting State and that is wholly-owned and controlled by the Government of that Contracting State or a political subdivision or local authority thereof, by any entity referred to in this subparagraph or by any combination thereof; and

  • c) any entity established in that Contracting State all the capital of which has been provided by the Government of that Contracting State or a political subdivision or local authority thereof either alone or together with the governments of other States.

• 3. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then the individual’s status shall be determined in accordance with the following rules:

  • a) the individual shall be deemed to be a resident only of the Contracting State in which the individual has a permanent home available;

  • b) if the individual has a permanent home available in both Contracting States, the individual shall be deemed to be a resident only of the Contracting State with which the individual’s personal and economic relations are closer (centre of vital interests);

  • c) if the Contracting State in which the individual’s centre of vital interests cannot be determined, or if the individual has not a permanent home available in either Contracting State, the individual shall be deemed to be a resident only of the Contracting State in which the individual has a habitual abode;

  • d) if the individual has an habitual abode in both Contracting States or in neither of them, the individual shall be deemed to be a resident only of the Contracting State of which the individual is a national;

  • e) if the individual’s status cannot be determined under the provisions of subparagraphs a) to d), the competent authorities of the Contracting States shall settle the question by mutual agreement.

• 4. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the Contracting State of which it is a national.

Article 5
Permanent Establishment

• 1. For the purposes of this Agreement, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

• 2. The term “permanent establishment” includes especially:

  • a) a place of management;

  • b) a branch;

  • c) an office;

  • d) a factory;

  • e) a workshop; and

  • f) a mine, an oil or gas well, a quarry or any other place relating to the exploration for or the exploitation of natural resources.

• 3. A building site, or construction, assembly, erection or installation project or a supervisory activity in connection therewith constitutes a permanent establishment only if such site, project or activity continues for a period of more than six months.

• 4. The furnishing of services, including consultancy services, by an enterprise of a Contracting State through employees or other engaged personnel in the other Contracting State constitutes a permanent establishment provided that such activities continue for the same project or a connected project for a period or periods aggregating more than six months within any twelve-month period.

• 5. An enterprise of a Contracting State shall be deemed to have a permanent establishment in the other Contracting State if substantial equipment is being used or installed for more than three months within any twelve-month period in the other Contracting State by, for or under contract with the enterprise.

• 6. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

  • a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

  • b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

  • c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

  • d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

  • e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character, for the enterprise;

  • f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

• 7. Notwithstanding the provisions of paragraphs 1 and 2, where a person — other than an agent of an independent status to whom paragraph 8 applies — is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State, in respect of any activities which that person undertakes for the enterprise, if:

  • a) that person has and habitually exercises in the first-mentioned Contracting State a general authority to negotiate and conclude contracts in the name of such enterprise; or

  • b) that person has no such authority, but habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise belonging to such enterprise from which that person regularly delivers goods or merchandise on behalf of such enterprise; or

  • c) that person habitually secures orders in the first-mentioned Contracting State, exclusively or almost exclusively for the enterprise itself or for such enterprise and other enterprises which are controlled by it or have a controlling interest in it; or

  • d) in so acting, that person manufactures in that Contracting State for the enterprise goods or merchandise belonging to the enterprise.

• 8. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other Contracting State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such a person are devoted wholly or almost wholly on behalf of that enterprise, that person shall not be considered an agent of an independent status within the meaning of this paragraph.

• 9. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

Article 6
Income from Immovable Property

• 1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other Contracting State.

• 2. The term “immovable property” shall have the meaning, which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships and aircraft shall not be regarded as immovable property.

• 3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property and to profits from the alienation of such property.

• 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7
Business Profits

• 1. The profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other Contracting State but only so much of them as is attributable to that permanent establishment.

• 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

• 3. In determining the profits of a permanent establishment, there shall be allowed as deductions those deductible expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting State in which the permanent establishment is situated or elsewhere. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices.

• 4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

• 5. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.

• 6. If the information available to the competent authority of a Contracting State is inadequate to determine the profits to be attributed to the permanent establishment of an enterprise, nothing in paragraph 2 shall affect the application of any law or regulations of that Contracting State relating to the determination of the tax liability of the enterprise in relation to that permanent establishment by the making of an estimate by the competent authority of that Contracting State of the profits to be attributed to that permanent establishment, provided that such law or regulations shall be applied, so far as the information available to the competent authority permits, in accordance with the principles of this Article.

• 7. For the purpose of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• 8. Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8
International Traffic

• 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that Contracting State.

• 2. For the purposes of this Article, profits from the operation of ships or aircraft in international traffic include:

  • a) profits from the rental on a bareboat basis of ships and aircraft; and

  • b) profits from the use, maintenance or rental of containers, including trailers and related equipment for the transport of containers, used for the transport of goods or merchandise;

  where such rental or such use, maintenance or rental, as the case may be, is incidental to the operation of ships or aircraft in international traffic.

• 3. Notwithstanding the provisions of paragraph 1 and Article 7, profits derived from the operation of ships or aircraft used principally to transport passengers or goods exclusively between places in a Contracting State may be taxed in that Contracting State.

• 4. The provisions of paragraphs 1, 2 and 3 shall also apply to profits derived from the participation in a pool, a joint business or an international operating agency.

Article 9
Associated Enterprises

• 1. Where

  • a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

  • b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

  and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

• 2. Where a Contracting State includes in the profits of an enterprise of that Contracting State — and taxes accordingly — profits on which an enterprise of the other Contracting State has been charged tax in that other Contracting State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned Contracting State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other Contracting State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Agreement and the competent authorities of the Contracting States shall, if necessary, consult each other.

• 3. A Contracting State shall not change the profits of an enterprise in the circumstances referred to in paragraph 1 after the expiry of the time limits provided in its national laws and, in any case, after five years from the end of the year in which the profits which would be subject to such change would have accrued to an enterprise of that Contracting State.

• 4. The provisions of paragraphs 2 and 3 shall not apply in the case of fraud, wilful default or neglect-.

Article 10
Dividends

• 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State.

• 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that Contracting State, but if a resident of the other Contracting State is the beneficial owner of the dividends the tax so charged shall not exceed:

  • a) except in the case of dividends paid by a non-resident-owned investment corporation that is a resident of Canada, 5 per cent of the gross amount of the dividends if the beneficial owner is a company that owns 10 per cent or more of the issued and outstanding voting stock, or 25 per cent or more of the value of all the issued and outstanding stock, of the company paying the dividends; and

  • b) 15 per cent of the gross amount of the dividends in all other cases.

  The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

• 3. The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income which is subjected to the same taxation treatment as income from shares by the taxation laws of the Contracting State of which the company making the distribution is a resident.

• 4. The provisions of paragraph 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other Contracting State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other Contracting State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other Contracting State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other Contracting State, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other Contracting State.

• 6. Notwithstanding any provision in this Agreement, Canada may impose on the earnings of a company attributable to permanent establishments in Canada, or on the alienation of immovable property (within the meaning assigned by Article 6) situated in Canada by a company carrying on a trade in immovable property, tax in addition to the tax which would be chargeable on the earnings of a company that is a resident of Canada, provided that the rate of such additional tax so imposed shall not exceed the percentage limitation provided for under subparagraph a) of paragraph 2 of the amount of such earnings which have not been subjected to such additional tax in previous taxation years. For the purpose of this provision, the term “earnings” means:

  • a) the earnings attributable to the alienation of such immovable property situated in Canada as may be taxed by Canada under the provisions of Article 6 or of paragraph 1 of Article 13; and

  • b) the profits attributable to such permanent establishments in Canada (including gains from the alienation of property forming part of the business property, referred to in paragraph 2 of Article 13, of such permanent establishments) in accordance with Article 7 in a year and previous years after deducting therefrom:

    • (1) business losses attributable to such permanent establishments (including losses from the alienation of property forming part of the business property of such permanent establishments) in such year and previous years,

    • (2) all taxes chargeable in Canada on such profits, other than the additional tax referred to herein,

    • (3) the profits reinvested in Canada, provided that the amount of such deduction shall be determined in accordance with the provisions of the law of Canada, as they may be amended from time to time without changing the general principle hereof, regarding the computation of the allowance in respect of investment in property in Canada, and

    • (4) five hundred thousand Canadian dollars ($500,000) or its equivalent in the currency of Kuwait, less any amount deducted:

      • (i) by the company, or

      • (ii) by a person related thereto from the same or a similar business as that carried on by the company,

      under this clause.

Article 11
Interest

• 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State.

• 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that Contracting State, but if a resident of the other Contracting State is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

• 3. Notwithstanding the provisions of paragraph 2,

  • a) interest arising in a Contracting State and paid in respect of indebtedness of the government of that Contracting State or of a political subdivision or local authority thereof shall, provided that the interest is beneficially owned by a resident of the other Contracting State, be taxable only in that other Contracting State;

  • b) interest arising in Kuwait and paid to a resident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by Export Development Canada, provided the loan or credit, as the case may be, was undertaken for the purpose of financing export from Canada;

  • c) interest arising in Canada and paid to a resident of Kuwait shall be taxable only in Kuwait if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Government of Kuwait or by any institution specified and agreed to in letters exchanged between the competent authorities of the Contracting States, provided the loan or credit, as the case may be, was undertaken for the purpose of financing export from Kuwait.

• 4. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures as well as income which is subjected to the same taxation treatment as income from money lent by the laws of the Contracting State in which the income arises. However, the term “interest” does not include income dealt with in Article 10.

• 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other Contracting State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that Contracting State. Where, however, the person paying the interest, whether that person is resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

Article 12
Royalties

• 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State.

• 2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if a resident of the other Contracting State is the beneficial owner of the royalties the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.

• 3. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films and works on films, tapes or other means of reproduction for use in connection with television or radio broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

• 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other Contracting State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that Contracting State. Where, however, the person paying the royalties, whether that person is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

• 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

Article 13
Capital Gains

• 1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other Contracting State.

• 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base may be taxed in that other Contracting State.

• 3. Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that Contracting State.

• 4. Gains derived by a resident of a Contracting State from the alienation of:

  • a) shares (other than shares listed on the Kuwaiti Stock Exchange or a Canadian stock exchange prescribed for the purpose of the Income Tax Act) of the capital stock of a company the property of which consists wholly or principally of immovable property situated in the other Contracting State, and

  • b) an interest in a partnership, trust or estate, the property of which consists wholly or principally of immovable property situated in the other Contracting State,

  may be taxed in that other Contracting State. For the purposes of this paragraph, the term “immovable property” includes the shares of a company referred to in subparagraph a) or an interest in a partnership, trust or estate referred to in subparagraph b) but does not include any property, other than rental property, in which the business of the company, partnership, trust or estate is carried on.

• 5. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident.

• 6. The provisions of paragraph 5 shall not affect the right of either of the Contracting States to levy, according to its law, a tax on gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned Contracting State at any time during the five years immediately preceding the alienation of the property.

• 7. Where an individual who ceases to be a resident of a Contracting State, and immediately thereafter becomes a resident of the other Contracting State, is treated for the purposes of taxation in the first-mentioned State as having alienated a property and is taxed in that State by reason thereof, the individual may elect to be treated for purposes of taxation in the other State as if the individual had, immediately before becoming a resident of that State, sold and repurchased the property for an amount equal to its fair market value at that time.

Article 14
Independent Personal Services

• 1. Income derived by an individual who is a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that Contracting State unless the individual has a fixed base regularly available in the other Contracting State for the purpose of performing the activities. If the individual has or had such a fixed base, the income may be taxed in the other Contracting State but only so much of it as is attributable to that fixed base.

• 2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15
Dependent Personal Services

• 1. Subject to the provisions of Articles 16, 18, and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that Contracting State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other Contracting State.

• 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned Contracting State if:

  • a) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the calendar year concerned; and

  • b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other Contracting State; and

  • c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other Contracting State.

• 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State, shall be taxable only in that Contracting State, unless the remuneration is derived by a resident of the other Contracting State.

Article 16
Directors’ Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in the capacity as a member of the board of directors or a similar organ of a company which is a resident of the other Contracting State shall be taxable only in the first mentioned Contracting State.

Article 17
Artistes and Athletes

• 1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other Contracting State.

• 2. Where income in respect of personal activities exercised by an entertainer or an athlete in that individual’s capacity as such accrues not to the entertainer or athlete personally but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised.

• 3. The provisions of paragraphs 1 and 2 shall not apply to income derived by entertainers or athletes who are residents of a Contracting State from personal activities as such exercised in the other Contracting State if their visit to that other Contracting State is substantially supported from the public funds of the first-mentioned Contracting State, including those of any political subdivision, a local authority or statutory body thereof, nor to income derived by a non-profit making organization in respect of such activities provided no part of its income is payable to, or is otherwise available for the personal benefit of its proprietors, founders or members.

Article 18
Pensions and Annuities

• 1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State.

• 2. Pensions arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the Contracting State in which they arise, and according to the law of that Contracting State. However, in the case of periodic pension payments, other than payments under the social security legislation in a Contracting State, the tax so charged shall not exceed 15 per cent of the gross amount of the payment.

• 3. Annuities arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the Contracting State in which they arise, and according to the law of that Contracting State; but the tax so charged shall not exceed 15 per cent of the portion thereof that is subject to tax in that Contracting State. However, this limitation does not apply to lump-sum payments arising on the surrender, cancellation, redemption, sale or other alienation of an annuity.

• 4. As used in this Article:

  • a) the term “pensions” means periodic payments, including payments under the social security legislation in a Contracting State, made after retirement in consideration of past employment or by way of compensations for injuries received in connection with past employment;

  • b) the term “annuity” means a stated sum payable periodically at stated times during life, or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money’s worth.

Article 19
Government Service

a) Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that Contracting State or subdivision or authority shall be taxable only in that Contracting State.

b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that Contracting State and the individual is a resident of that Contracting State who:

(1) is a national of that Contracting State; or

(2) did not become a resident of that Contracting State solely for the purpose of rendering the services.

• 2. The provisions of Articles 15, 16 and 17 shall apply to salaries, wages and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or local authority thereof.

Article 20
Students and Trainees

Payments which a student or business trainee who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned Contracting State solely for the purpose of that individual’s education or training receives for the purpose of that individual’s maintenance, education or training shall not be taxed in that Contracting State, provided that such payments arise from sources outside that Contracting State.

Article 21
Income of Government and Institutions

• 1. Notwithstanding the provisions of Articles 10 and 11, dividends paid by a company that is a resident of a Contracting State, and interest that arises in that Contracting State and that is paid by a company that is a resident of that Contracting State, to a resident of the other Contracting State that is referred to in paragraph 2 of Article 4 and that is the beneficial owner of the dividends or interest, as the case may be, shall be taxable only in the other Contracting State provided that:

  • a) the recipient, together with all other residents of the other Contracting State that are referred to in paragraph 2 of Article 4, neither own or control shares of the company representing more than 25 per cent of the value of all of its issued and outstanding shares nor control directly or indirectly in any manner whatever more than 25 per cent of the votes in respect of the shares of the company; and

  • b) the recipient has not received the dividends or interest, as the case may be, in the course of carrying on an industrial or commercial activity.

• 2. Notwithstanding the provisions of Article 13, gains derived by a resident of a Contracting State that is referred to in paragraph 2 of Article 4 from the alienation of shares or debt-claims the dividends or interest on which would be exempt from taxation in the other Contracting State shall be taxable only in the first-mentioned Contracting State.

Article 22
Other Income

• 1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Agreement shall be taxable only in that Contracting State.

• 2. However, if such income is derived by a resident of a Contracting State from sources in the other Contracting State, such income may also be taxed in the Contracting State in which it arises, and according to the law of that Contracting State.

• 3. The provisions of paragraph 1 shall not apply to income, other than income from immovable property referred to in Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other Contracting State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

Article 23
Capital

• 1. Capital represented by immovable property referred to in Article 6, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other Contracting State.

• 2. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other Contracting State.

• 3. Capital represented by ships and aircraft operated in international traffic by an enterprise of a Contracting State and by movable property pertaining to the operation of such ships and aircraft, shall be taxable only in that Contracting State.

• 4. All other elements of capital of a resident of a Contracting State shall be taxable only in that Contracting State.

Article 24
Elimination of Double Taxation

• 1. It is agreed that double taxation shall be avoided in accordance with the following paragraphs of this Article.

  • a) In the case of Canada: subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions — which shall not affect the general principle hereof — and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Kuwait on profits, income or gains arising in Kuwait shall be deducted from any Canadian tax payable in respect of such profits, income or gains.

  • b) In the case of Kuwait: where a resident of Kuwait derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in both Canada and Kuwait, Kuwait shall allow as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in Canada; and as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in Canada. Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in Canada.

• 2. For the purposes of this Article, profits, income or gains of a resident of a Contracting State which are taxed in the other Contracting State in accordance with this Agreement shall be deemed to arise from sources in that other Contracting State.

Article 25
Mutual Agreement Procedure

• 1. Where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of this Agreement that person may, irrespective of the remedies provided by the domestic law of those Contracting States, present a case to the competent authority of the Contracting State of which the person is a resident. The case must be presented within two years from the first notification of the action resulting in taxation not in accordance with the provisions of this Agreement.

• 2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with this Agreement. Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States, provided that the competent authority of the other Contracting State has received notification that such a case exists within six years from the end of the taxable year to which the case relates.

• 3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of this Agreement. They may also consult together for the elimination of double taxation in cases not provided for in this Agreement.

• 4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.

Article 26
Exchange of Information

• 1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Agreement or of the domestic laws of the Contracting States concerning taxes covered by this Agreement insofar as the taxation thereunder is not contrary to this Agreement. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that Contracting State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by this Agreement. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

• 2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

  • a) to carry out administrative measures at variance with the laws and administrative practices of that or of the other Contracting State;

  • b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

  • c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

Article 27
Miscellaneous Rules

• 1. The laws in force in either of the Contracting States shall continue to govern the taxation in the respective Contracting State except where provisions to the contrary are made in this Agreement.

• 2. The provisions of this Agreement shall not be construed to restrict in any manner any exclusion, exemption, deduction, credit or other allowance now or hereafter accorded:

  • a) by the laws of a Contracting State in the determination of the tax imposed by that Contracting State; or

  • b) by any other special arrangement on taxation in connection with the economic or technical cooperation between the Contracting States.

• 3. Nothing in this Agreement shall be construed as preventing Canada from imposing a tax on amounts included in the income of a resident of Canada with respect to a partnership, trust, or controlled foreign affiliate, in which that resident has an interest.

• 4. For purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that, notwithstanding that paragraph, any dispute between them as to whether a measure falls within the scope of this Agreement may be brought before the Council for Trade in Services, as provided by that paragraph, only with the consent of both Contracting States. Any doubt as to the interpretation of this paragraph shall be resolved under paragraph 3 of Article 25 or, failing agreement under that procedure, pursuant to any other procedure agreed to by both Contracting States.

Article 28
Diplomatic and Consular Privileges

Nothing in this Agreement shall affect the fiscal privileges of members of a diplomatic mission, a consular post or an international organization under the general rules of international law or under the provisions of special agreements.

Article 29
Entry Into Force

Each of the Contracting States shall notify to the other the completion of its constitutional procedures for the entry into force of this Agreement. This Agreement shall enter into force on the date of the later of these notifications and its provisions shall thereupon have effect in both Contracting States:

• a) in respect of taxes withheld at source, for amounts paid or credited on or after the first day of January of the year in which this Agreement enters into force;

• b) in respect of other taxes, for taxable periods beginning on or after the first day of January of the year in which this Agreement enters into force.

Article 30
Termination

This Agreement shall remain in force for a period of five years and shall continue thereafter for a similar period or periods unless, either Contracting State notifies the other in writing at least six months before the expiry of the initial period, or any subsequent period, of its intention to terminate this Agreement. In such event, this Agreement shall cease to have effect in both Contracting States:

• a) in respect of taxes withheld at source, for amounts paid or credited on or after the first day of January of the year next following that in which the notice of termination is given; and

• b) in respect of other taxes, for taxable periods beginning on or after the first day of January of the year next following that in which the notice of termination is given.

IN WITNESS WHEREOF the respective plenipotentiaries of both Contracting States, have signed this Agreement.

DONE at Ottawa this 28th day of January 2002 corresponding to 15th day of Thul gida 1422H, in duplicate, in the English, French and Arabic languages, all texts being equally authoritative.

The Government of Canada and the Government of Mongolia, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have agreed as follows:

I. SCOPE OF THE CONVENTION

Article 1
Persons Covered

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2
Taxes Covered

• 1. This Convention shall apply to taxes on income and on capital imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.

• 2. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains derived from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation.

• 3. The existing taxes to which the Convention shall apply are, in particular:

  • (a) in the case of Canada, the taxes imposed by the Government of Canada under the Income Tax Act (hereinafter referred to as “Canadian tax”); and

  • (b) in the case of Mongolia:

    • (i) the individual income tax, and

    • (ii) the corporate income tax,

    (hereinafter referred to as “Mongolian tax”).

• 4. The Convention shall apply also to any identical or substantially similar taxes and to taxes on capital which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes which have been made in their respective taxation laws.

II. DEFINITIONS

Article 3
General Definitions

• 1. For the purposes of this Convention, unless the context otherwise requires,

  • (a) the term “Canada”, used in a geographical sense, means the territory of Canada, including its territorial sea and air space over the land territory and the territorial sea, as well as the exclusive economic zone and the continental shelf beyond that zone, over which Canada exercises, in accordance with international law, its sovereign rights;

  • (b) the term “Mongolia”, used in a geographical sense, means the territory of Mongolia including any area in which the tax law of Mongolia is in force insofar as Mongolia exercises in such area, in conformity with international law, sovereign rights to exploit its natural resources, and the airspace above the land territory;

  • (c) the terms “a Contracting State” and “the other Contracting State” mean, as the context requires, Canada or Mongolia;

  • (d) the term “person” includes an individual, a trust, a company, a partnership and any other body of persons;

  • (e) the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes;

  • (f) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

  • (g) the term “competent authority” means

    • (i) in the case of Canada, the Minister of National Revenue or the Minister’s authorized representative, and

    • (ii) in the case of Mongolia, the Minister of Finance or the Minister’s authorized representative;

  • (h) the term “national” means

    • (i) any individual possessing the nationality of a Contracting State;

    • (ii) any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State;

  • (i) the term “international traffic” means any voyage of a ship or aircraft operated by an enterprise of a Contracting State to transport passengers or property except where the principal purpose of the voyage is to transport passengers or property between places within the other Contracting State.

• 2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies.

Article 4
Resident

• 1. For the purposes of this Convention, the term “resident of a Contracting State” means

  • (a) any person who, under the laws of that State, is liable to tax therein by reason of the person’s domicile, residence, place of management or any other criterion of a similar nature but does not include any person who is liable to tax in that State in respect only of income from sources in that State, and

  • (b) the Government of a Contracting State or of a political subdivision thereof, a local authority therein, or an instrumentality of any such government or authority.

• 2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then the individual’s status shall be determined as follows:

  • (a) the individual shall be deemed to be a resident only of the State in which the individual has a permanent home available and if the individual has a permanent home available in both States, the individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

  • (b) if the State in which the individual’s centre of vital interests is situated cannot be determined, or if there is not a permanent home available to the individual in either State, the individual shall be deemed to be a resident only of the State in which the individual has an habitual abode;

  • (c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national; and

  • (d) if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

• 3. Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then its status shall be determined as follows:

  • (a) it shall be deemed to be a resident only of the State of which it is a national; or

  • (b) if it is a national of neither of the States, it shall be deemed to be a resident only of the State in which its place of effective management is situated.

• 4. Where by reason of the provisions of paragraph 1 a person other than an individual or a company is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of the Convention to such person. In the absence of such agreement, such person shall not be entitled to claim any relief or exemption from tax provided by the Convention.

Article 5
Permanent Establishment

• 1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

• 2. The term “permanent establishment” includes especially

  • (a) a place of management;

  • (b) a branch;

  • (c) an office;

  • (d) a factory;

  • (e) a workshop; and

  • (f) a mine, an oil or gas well, a quarry or any other place relating to the exploration for or the exploitation of natural resources.

• 3. The term “permanent establishment” likewise encompasses:

  • (a) a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only where such site, project or activities continue for a period of more than six months;

  • (b) the furnishing of services, including consultancy services, by an enterprise of a Contracting State through employees or other personnel engaged by the enterprise for such purposes in the other Contracting State, but only where activities of that nature continue (for the same or a connected project) within that State for a period or periods aggregating more than six months within any twelve month period.

• 4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include

  • (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

  • (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

  • (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

  • (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

  • (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character; or

  • (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e) provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

• 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person (other than an agent of an independent status to whom paragraph 6 applies) is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

• 6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

• 7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

III. TAXATION OF INCOME

Article 6
Income From Immovable Property

• 1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

• 2. For the purposes of this Convention, the term “immovable property” shall have the meaning which it has for the purposes of the relevant tax law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property.

• 3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property and to income from the alienation of such property.

• 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7
Business Profits

• 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

• 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment and with all other persons.

• 3. In the determination of the profits of a permanent establishment, there shall be allowed those deductible expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses, whether incurred in the State in which the permanent establishment is situated or elsewhere.

• 4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

• 5. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• 6. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8
Shipping and Air Transport

• 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

• 2. Notwithstanding the provisions of Article 7, profits derived by an enterprise of a Contracting State from a voyage of a ship or aircraft where the principal purpose of the voyage is to transport passengers or property between places in the other Contracting State may be taxed in that other State.

• 3. The provisions of paragraphs 1 and 2 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

• 4. For the purposes of this Article,

  • (a) the term “profits” includes

    • (i) gross receipts and revenues derived directly from the operation of ships or aircraft in international traffic, and

    • (ii) interest that is incidental to the operation of ships or aircraft in international traffic; and

  • (b) the term “operation of ships or aircraft in international traffic” by an enterprise, includes

    • (i) the charter or rental of ships or aircraft, and

    • (ii) the rental of containers and related equipment,

    by that enterprise if that charter or rental is incidental to the operation by that enterprise of ships or aircraft in international traffic.

Article 9
Associated Enterprises

Where

• (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

• (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations that differ from those that would be made between independent enterprises, then any income that would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, has not so accrued, may be included in the income of that enterprise and taxed accordingly.

Article 10
Dividends

• 1. Dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

  • (a) except in the case of dividends paid by a non-resident-owned investment corporation that is a resident of Canada, 5 per cent of the gross amount of the dividends if the beneficial owner is a company that controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; and

  • (b) 15 per cent of the gross amount of the dividends, in all other cases.

  The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

• 3. The term “dividends” as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

• 4. The provisions of paragraph 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5. Where a company that is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

• 6. Nothing in this Convention shall be construed as preventing a Contracting State from imposing on the earnings of a company attributable to a permanent establishment in that State, or the earnings attributable to the alienation of immovable property situated in that State by a company carrying on a trade in immovable property, a tax in addition to the tax that would be chargeable on the earnings of a company that is a national of that State, except that any additional tax so imposed shall not exceed five per cent of the amount of such earnings that have not been subjected to such additional tax in previous taxation years.

Article 11
Interest

• 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

• 3. Notwithstanding the provisions of paragraph 2:

  • (a) interest arising in a Contracting State and paid in respect of indebtedness of the Government of that State or of a political subdivision or local authority thereof shall, if the interest is beneficially owned by a resident of the other Contracting State, be taxable only in that other State;

  • (b) interest arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by an entity wholly-owned and controlled by the Government of that other State, provided the loan or credit is in respect of imports or exports.

• 4. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income which is subjected to the same taxation treatment as income from money lent by the laws of the State in which the income arises. However, the term “interest” does not include income dealt with in Article 8 or Article 10.

• 5. The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount that would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 12
Royalties

• 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed:

  • (a) 5 per cent of the gross amount of the royalties in the case of:

    • (i) copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other artistic work (but not including royalties in respect of motion picture films nor royalties in respect of works on film or videotape or other means of reproduction for use in connection with television broadcasting); and

    • (ii) royalties for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalty provided in connection with a rental or franchise agreement);

  • (b) 10 per cent of the gross amount of the royalties in all other cases.

• 3. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright, patent, trade mark, design or model, plan, secret formula or process or other intangible property, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience, and includes payments of any kind in respect of motion picture films and works on film, videotape or other means of reproduction for use in connection with television.

• 4. The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and another person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount that would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 12A
Technical Fees

• 1. Technical fees arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such technical fees may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the beneficial owner of the technical fees is a resident of the other Contracting State, the tax so charged shall not exceed 5 per cent of the gross amount of the technical fees.

• 3. The term “technical fees” as used in this Article means payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any services of a technical, managerial or consultancy nature.

• 4. The provisions of paragraph 2 of this Article shall not apply if the recipient of the technical fees, being a resident of a Contracting State, carries on business in the other Contracting State in which the technical fees arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the technical fees are effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5. Technical fees shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the technical fees, whether a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the technical fees was incurred, and such technical fees are borne by that permanent establishment or fixed base, then such technical fees shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the technical fees paid exceeds for whatever reason, the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 13
Capital Gains

• 1. Gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State.

• 2. Gains derived from the alienation of movable property forming part of the business property of a permanent establishment that an enterprise of a Contracting State has or had in the other Contracting State or of movable property pertaining to a fixed base that is or was available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base, may be taxed in that other State.

• 3. Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or from containers used in, or other movable property pertaining to, the operation of such ships or aircraft shall be taxable only in that State.

• 4. Gains derived by a resident of a Contracting State from the alienation of

  • (a) shares, the value of which is derived principally from immovable property situated in the other State; or

  • (b) an interest in a partnership or trust, the value of which is derived principally from immovable property situated in that other State;

  may be taxed in that other State. For the purposes of this paragraph, the term “immovable property” does not include any property, other than rental property, in which the business of the company, partnership or trust is carried on.

• 5. Where a resident of a Contracting State alienates property in the course of a corporate or other organization, reorganization, amalgamation, division or similar transaction and profit, gain or income with respect to such alienation is not recognized for the purpose of taxation in that State, if requested to do so by the person who acquires the property, the competent authority of the other Contracting State may agree, in order to avoid double taxation and subject to terms and conditions satisfactory to such competent authority, to defer the recognition of the profit, gain or income with respect to such property for the purpose of taxation in that other State until such time and in such manner as may be stipulated in the agreement.

• 6. Gains derived from the alienation of any property, other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident.

• 7. The provisions of paragraph 6 shall not affect the right of a Contracting State to levy, according to its laws, a tax on gains derived from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned State at any time during the six years immediately preceding the alienation of the property.

• 8. Where an individual who ceases to be a resident of a Contracting State, and immediately thereafter becomes a resident of the other Contracting State, is treated for the purposes of taxation in the first-mentioned State as having alienated a property and is taxed in that State by reason thereof, the individual may elect to be treated for purposes of taxation in the other State as if the individual had, immediately before becoming a resident of that State, sold and repurchased the property for an amount equal to its fair market value at that time.

Article 14
Independent Personal Services

• 1. Subject to the provisions of Article 12A, income derived by an individual who is a resident of a Contracting State in respect of professional or similar services of an independent character shall be taxable only in that State except in the following circumstances, when such income may also be taxed in the other Contracting State:

  • (a) if the individual has or had a fixed base regularly available in the other Contracting State for the purpose of performing the services; in that case, only so much of the income as is attributable to that fixed base may be taxed in the other Contracting State; or

  • (b) if the individual is present in the other Contracting State for a period or periods exceeding in the aggregate 183 days in any 12 month period commencing or ending in the fiscal year concerned; in that case, only so much of the income as is derived from the individual’s activities performed in that other Contracting State may be taxed in that other Contracting State.

• 2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15
Dependent Personal Services

• 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

• 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

  • (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the calendar year concerned; and

  • (b) the remuneration is paid by, or on behalf of, a person who is not a resident of the other State; and

  • (c) such remuneration is not borne by a permanent establishment or a fixed base that the person has in the other State.

• 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in that State unless the remuneration is derived by a resident of the other Contracting State.

Article 16
Directors’ Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in the capacity as a member of the board of directors or a similar organ of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17
Artistes and Sportspersons

• 1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.

• 2. Where income in respect of personal activities exercised by an entertainer or a sportsperson in that individual’s capacity as such accrues not to the entertainer or sportsperson personally but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

• 3. The provisions of paragraph 2 shall not apply if it is established that neither the entertainer or the sportsperson nor persons related thereto participate directly or indirectly in the profits of the person referred to in that paragraph.

• 4. The provisions of paragraphs 1 and 2 shall not apply to income derived from activities performed in a Contracting State by artistes or sportspersons if the visit to that State is wholly or mainly supported by public funds of one or both of the Contracting States or political subdivisions or local authorities thereof. In such a case, the income shall be taxable only in the Contracting State in which the artiste or the sportsperson is a resident.

Article 18
Pensions and Annuities

• 1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. Pensions arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise and according to the laws of that State. However, in the case of periodic pension payments, other than payments under the social security legislation in a Contracting State, the tax so charged shall not exceed the lesser of

  • (a) 15 per cent of the gross amount of the payment; and

  • (b) the rate determined by reference to the amount of tax that the recipient of the payment would otherwise be required to pay for the year on the total amount of the periodic pension payments received by the individual in the year, if the individual were resident in the Contracting State in which the payment arises.

• 3. Annuities arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise and according to the law of that State, but the tax so charged shall not exceed 15 per cent of the portion thereof that is subject to tax in that State. However, this limitation does not apply to lump-sum payments arising on the surrender, cancellation, redemption, sale or other alienation of an annuity, or to payments of any kind under an annuity contract the cost of which was deductible, in whole or in part, in computing the income of any person who acquired the contract.

• 4. Notwithstanding anything in this Convention

  • (a) war pensions and allowances (including pensions and allowances paid to war veterans or paid as a consequence of damages or injuries suffered as a consequence of a war) arising in a Contracting State and paid to a resident of the other Contracting State shall be exempt from tax in that other State to the extent that they would be exempt from tax if received by a resident of the first-mentioned State;

  • (b) benefits under the social security legislation in a Contracting State paid to a resident of the other Contracting State shall be taxable only in the first-mentioned State; and

  • (c) alimony and other similar payments arising in a Contracting State and paid to a resident of the other Contracting State who is subject to tax therein in respect thereof shall be taxable only in that other State, but the amount taxable in that other State shall not exceed the amount that would be taxable in the first-mentioned State if the recipient were a resident thereof.

Article 19
Government Service

(a) Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

(b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who

(i) is a national of that State, or

(ii) did not become a resident of that State solely for the purpose of rendering the services.

• 2. The provisions of paragraph 1 shall not apply to salaries, wages and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

Article 20
Students

Payments which a student, apprentice or business trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of that individual’s education or training receives for the purpose of that individual’s maintenance, education or training shall not be taxed in that State, if such payments arise from sources outside that State.

Article 21
Other Income

• 1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

• 2. However, if such income is derived by a resident of a Contracting State from sources in the other Contracting State, such income may also be taxed in the State in which it arises and according to the law of that State. Where such income is income from a trust, other than a trust to which contributions were deductible, the tax so charged shall, if the income is taxable in the Contracting State in which the beneficial owner is a resident, not exceed 15 per cent of the gross amount of the income.

IV. TAXATION OF CAPITAL

Article 22
Capital

• 1. Capital represented by immovable property owned by a resident of a Contracting State and situated in the other Contracting State may be taxed in that other State.

• 2. Capital represented by movable property forming part of the business property of a permanent establishment that an enterprise of a Contracting State has in the other Contracting State, or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other State.

• 3. Capital represented by ships and aircraft operated by an enterprise of a Contracting State in international traffic and by movable property pertaining to the operation of such ships and aircraft shall be taxable only in that State.

• 4. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

V. METHODS FOR ELIMINATION OF DOUBLE TAXATION

Article 23
Elimination of Double Taxation

• 1. In the case of Canada, double taxation shall be avoided as follows:

  • (a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions — which shall not affect the general principle hereof — and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Mongolia on profits, income or gains arising in Mongolia shall be deducted from any Canadian tax payable in respect of such profits, income or gains;

  • (b) where, in accordance with any provision of the Convention, income derived or capital owned by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income or capital, take into account the exempted income or capital.

• 2. In the case of Mongolia, where a resident of Mongolia derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in Canada, the following rules are applicable:

  • (a) Mongolia shall allow:

    • (i) as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in Canada;

    • (ii) as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in Canada.

    Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in Canada.

  • (b) Where in accordance with any provision of the Convention income derived or capital owned by a resident of Mongolia is exempt from tax in Mongolia, Mongolia may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.

• 3. For the purposes of subparagraph (a) of paragraph 1, tax payable in Mongolia by a company which is a resident of Canada in respect of profits attributable to manufacturing activities or to the exploration or exploitation of natural resources carried on by it in Mongolia shall be deemed to include any amount which would have been payable thereon as Mongolian tax for any year but for an exemption from, or reduction of, tax granted for that year or any part thereof under specific provisions of Mongolian legislation and provided always that the competent authority of Mongolia has certified that any such exemption from or reduction of Mongolian tax given under these provisions has been granted in order to promote economic development in Mongolia. Canada will only provide relief from Canadian tax by virtue of this paragraph for profits for taxation years beginning after the date on which the Convention entered into force and ending within three years of that date.

• 4. For the purposes of this Article, profits, income or gains of a resident of a Contracting State that may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other State.

VI. SPECIAL PROVISIONS

Article 24
Non-discrimination

• 1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith that is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

• 2. The taxation on a permanent establishment that an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities.

• 3. Nothing in this Article shall be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities that it grants to its own residents.

• 4. Except where the provisions of Article 9, paragraph 7 of Article 11, paragraph 6 of Article 12 or paragraph 6 of Article 12A apply, interest, royalties, technical fees and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State. Similarly, any debts of an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable capital of such enterprise, be deductible under the same conditions as if they had been contracted to a resident of the first-mentioned State.

• 5. The provisions of paragraph 4 shall not affect the operation of any provision of the taxation laws of a Contracting State:

  • (a) relating to the deductibility of interest and which is in force on the date of signature of this Convention (including any subsequent modification of such provision that does not change the general nature thereof); or

  • (b) adopted after such date by a Contracting State and which is designed to ensure that a person who is not a resident of that State does not enjoy, under the laws of that State, a tax treatment that is more favorable than that enjoyed by residents of that State.

• 6. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith that is more burdensome than the taxation and connected requirements to which other similar enterprises that are residents of the first-mentioned State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of a third State, are or may be subjected.

• 7. In this Article, the term “taxation” means taxes that are the subject of this Convention.

Article 25
Mutual Agreement Procedure

• 1. Where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of this Convention, that person may, irrespective of the remedies provided by the domestic law of those States, address to the competent authority of the Contracting State of which that person is a resident an application in writing stating the grounds for claiming the revision of such taxation. To be admissible, the said application must be submitted within two years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.

• 2. The competent authority referred to in paragraph 1 shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.

• 3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention.

• 4. The competent authorities of the Contracting States may consult together for the elimination of double taxation in cases not provided for in the Convention and may communicate with each other directly for the purpose of applying the Convention.

• 5. If any difficulty or doubt arising as to the interpretation or application of the Convention cannot be resolved by the competent authorities pursuant to the preceding paragraphs of this Article, the case may be submitted for arbitration if both competent authorities and the taxpayer agree and the taxpayer agrees in writing to be bound by the decision of the arbitration board. The decision of the arbitration board in a particular case shall be binding on both States with respect to that case. The procedure shall be established in an exchange of notes between the Contracting States.

Article 26
Exchange of Information

• 1. The competent authorities of the Contracting States shall exchange such information as is relevant for carrying out the provisions of this Convention or of the domestic laws in the Contracting States concerning taxes covered by this Convention insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to taxes imposed by that State. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

• 2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation

  • (a) to carry out administrative measures at variance with the laws and the administrative practice of that or of the other Contracting State;

  • (b) to supply information that is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; or

  • (c) to supply information that would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

• 3. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall endeavour to obtain the information to which the request relates in the same way as if its own taxation were involved, even though the other State does not, at that time, need such information. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall endeavour to provide information under this Article in the form requested, such as depositions of witnesses and copies of unedited original documents (including books, papers, statements, records, accounts or writings), to the same extent such depositions and documents can be obtained under the laws and administrative practices of that other State with respect to its own taxes.

Article 27
Members of Diplomatic Missions and Consular Posts

• 1. Nothing in this Convention shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.

• 2. Notwithstanding the provisions of Article 4, an individual who is a member of a diplomatic mission, consular post or permanent mission of a Contracting State that is situated in the other Contracting State or in a third State shall be deemed for the purposes of the Convention to be a resident only of the sending State if that individual is liable in the sending State to the same obligations in relation to tax on total income as are residents of that sending State.

• 3. The Convention shall not apply to international organizations, to organs or officials thereof and to persons who are members of a diplomatic mission, consular post or permanent mission of a third State or group of States, being present in a Contracting State and who are not liable in either Contracting State to the same obligations in relation to tax on their total income as are residents thereof.

Article 28
Miscellaneous Rules

• 1. The provisions of this Convention shall not be construed to restrict in any manner any exemption, allowance, credit or other deduction accorded by the laws of a Contracting State in the determination of the tax imposed by that State. For greater certainty, such provisions shall not restrict the application of any lower rate of tax established by those laws, in particular, with respect to the income from any production sharing or similar contracts relating to the oil, gas or mining sectors concluded by the Government of Mongolia with a person who is a resident of Canada.

• 2. Nothing in the Convention shall be construed as preventing Canada from imposing a tax on amounts included in the income of a resident of Canada with respect to a partnership, trust, or controlled foreign affiliate, in which that resident has an interest.

• 3. The Convention shall not apply to any company, trust or other entity that is a resident of a Contracting State and is beneficially owned or controlled, directly or indirectly, by one or more persons who are not residents of that State, if the amount of the tax imposed on the income or capital of the company, trust or other entity by that State is substantially lower than the amount that would be imposed by that State if all of the shares of the capital stock of the company or all of the interests in the trust or other entity, as the case may be, were beneficially owned by one or more individuals who were residents of that State.

• 4. For the purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that, notwithstanding that paragraph, any dispute between them as to whether a measure falls within the scope of the Convention may be brought before the Council for Trade in Services, as provided by that paragraph, only with the consent of both Contracting States. Any doubt as to the interpretation of this paragraph shall be resolved under paragraph 3 of Article 25 or, failing agreement under that procedure, pursuant to any other procedure agreed to by both Contracting States.

• 5. Where under any provision of the Convention any income is relieved from tax in a Contracting State and, under the law in force in the other Contracting State a person, in respect of that income, is subject to tax by reference to the amount thereof that is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the relief to be allowed under the Convention in the first-mentioned Contracting State shall apply only to so much of the income as is taxed in the other Contracting State.

VII. FINAL PROVISIONS

Article 29
Entry into Force

• 1. The Governments of the Contracting States shall notify each other through diplomatic channels that the constitutional requirements for the entry into force of this Convention have been complied with.

• 2. The Convention shall enter into force upon the date of the later of the notifications referred to in paragraph 1 and its provisions shall apply:

  • (a) in respect of tax withheld at the source on amounts paid or credited to non-residents on or after the first day of January in the calendar year next following that in which the Convention enters into force; and

  • (b) in respect of other taxes, for taxation years beginning on or after the first day of January in the calendar year next following that in which the Convention enters into force.

Article 30
Termination

This Convention shall continue in effect indefinitely but either Contracting State may, on or before June 30 of any calendar year beginning after the fifth year from the date of the entry into force of the Convention, give to the other Contracting State a notice of termination in writing through diplomatic channels. In such event, the Convention shall cease to have effect

• (a) in respect of tax withheld at the source on amounts paid or credited to non-residents, after the end of that calendar year, and

• (b) in respect of other taxes, for taxation years beginning after the end of that calendar year.

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Convention.

DONE in duplicate at Ottawa, this 27th day of May, 2002, in the English, French and Mongolian languages, each version being equally authentic.

The Government of Canada and the Government of the United Arab Emirates, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have agreed as follows:

I. SCOPE OF THE CONVENTION

Article 1
Persons Covered

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2
Taxes Covered

• 1. This Convention shall apply to taxes on income and on capital imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.

• 2. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains from the alienation of movable or immovable property, as well as taxes on capital appreciation.

• 3. The existing taxes to which the Convention shall apply are, in particular:

  • (a) in the case of Canada, the taxes on income and on capital imposed by the Government of Canada under the Income Tax Act, (hereinafter referred to as “Canadian tax”);

  • (b) in the case of the United Arab Emirates:

    • (i) the income tax; and

    • (ii) the corporation tax,

    (hereinafter referred to as “U.A.E. tax”).

• 4. The Convention shall apply also to any identical or substantially similar taxes on income and to taxes on capital which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes which have been made in their respective taxation laws.

II. DEFINITIONS

Article 3
General Definitions

• 1. For the purposes of this Convention, unless the context otherwise requires:

  • (a) the term “Canada”, used in a geographical sense, means the territory of Canada, including:

    • (i) any area beyond the territorial sea of Canada that, in accordance with international law and the laws of Canada, is an area in respect of which Canada may exercise rights with respect to the seabed and subsoil and their natural resources;

    • (ii) the sea and airspace above every area referred to in clause (i);

  • (b) the term “United Arab Emirates” means the United Arab Emirates and, when used in a geographical sense, means the area in which the territory is under its sovereignty as well as the territorial sea, airspace and submarine areas over which the United Arab Emirates exercises, in conformity with international law and the laws of the United Arab Emirates, sovereign rights, including the mainland and islands under its jurisdiction in respect of any activity carried on in connection with the exploration for or the exploitation of the natural resources of the seabed and subsoil;

  • (c) the terms “a Contracting State” and “the other Contracting State” mean, as the context requires, Canada or the United Arab Emirates;

  • (d) the term “person” includes an individual, a trust, a company, a partnership and any other body of persons;

  • (e) the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes;

  • (f) the term “competent authority” means:

    • (i) in the case of Canada, the Minister of National Revenue or the Minister’s authorized representative;

    • (ii) in the case of the United Arab Emirates, the Minister of Finance and Industry or the Minister’s authorized representative;

  • (g) the term “national” means:

    • (i) any individual possessing the nationality of a Contracting State according to the law of that State;

    • (ii) any legal person, partnership and association deriving its status as such from the laws in force in a Contracting State;

  • (h) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

  • (i) the term “international traffic” means any voyage of a ship or aircraft operated by an enterprise of a Contracting State to transport passengers or property except where the principal purpose of the voyage is to transport passengers or property between places within the other Contracting State.

• 2. As regards the application of the Convention by a Contracting State at any time, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies.

Article 4
Resident

• 1. For the purposes of this Convention, the term “resident of a Contracting State” means:

  • (a) in the case of Canada, any person who, under the laws of that State, is liable to tax therein by reason of the person’s domicile, residence, place of management, place of incorporation or any other criterion of a similar nature but does not include any person who is liable to tax in that State in respect only of income from sources in that State;

  • (b) in the case of the United Arab Emirates,

    • (i) an individual who is a national of the United Arab Emirates, provided that the individual has a substantial presence, permanent home or habitual abode in the United Arab Emirates and that individual’s personal and economic relations are closer to the United Arab Emirates than to any other State;

    • (ii) a company which is incorporated in the United Arab Emirates, provided such company can establish that:

      • (A) all of the shares of the company are beneficially owned by residents of the United Arab Emirates; or

      • (B) all or substantially all of the company’s income is derived by the company from the active conduct of a trade or business, other than an investment business, in the United Arab Emirates and all or substantially all of the value of the company’s property is attributable to property used in that trade or business.

• 2. For the purposes of paragraph 1, the term “resident of a Contracting State” shall include:

  • (a) the Government of that Contracting State or a political subdivision or local Government or local authority thereof; and

  • (b) any corporation, Central Bank, Abu Dhabi Investment Authority, fund, authority, foundation, commission, agency or other entity that was established under the law of that Contracting State and that is wholly-owned and controlled by the Government of that Contracting State or a political subdivision or local authority thereof, by any entity referred to in this subparagraph or by any combination thereof; and

  • (c) any entity established in that Contracting State all the capital of which has been provided by the Government of that Contracting State or a political subdivision or local authority thereof either alone or together with the governments of other states.

• 3. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then the individual’s status shall be determined as follows:

  • (a) the individual shall be deemed to be a resident only of the State in which the individual has a permanent home available; if the individual has a permanent home available in both States, the individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

  • (b) if the State in which the individual’s centre of vital interests is situated cannot be determined, or if there is not a permanent home available in either State, the individual shall be deemed to be a resident only of the State in which the individual has an habitual abode;

  • (c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

  • (d) if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

• 4. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the Contracting State of which it is a national.

Article 5
Permanent Establishment

• 1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

• 2. The term “permanent establishment” includes especially:

  • (a) a place of management;

  • (b) a branch;

  • (c) an office;

  • (d) a factory;

  • (e) a workshop; and

  • (f) a mine, an oil or gas well, a quarry or any other place relating to the exploration for or the exploitation of natural resources.

• 3. A building site or construction or installation project constitutes a permanent establishment only if it lasts for more than twelve months.

• 4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

  • (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

  • (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

  • (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

  • (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

  • (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

  • (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e) provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

• 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person — other than an agent of an independent status to whom paragraph 6 applies — is acting on behalf of an enterprise and has, and habitually exercises in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

• 6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly to the business of that enterprise, such agent shall not be considered an agent of an independent status within the meaning of this paragraph.

• 7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

III. TAXATION OF INCOME

Article 6
Income From Immovable Property

• 1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

• 2. For the purposes of this Convention, the term “immovable property” shall have the meaning which it has under the taxation law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships and aircraft shall not be regarded as immovable property.

• 3. The provisions of paragraph l shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

• 4. The provisions of paragraphs l and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7
Business Profits

• 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

• 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

• 3. In the determination of the profits of a permanent establishment, there shall be allowed those deductible expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses, whether incurred in the Contracting State in which the permanent establishment is situated or elsewhere.

• 4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

• 5. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• 6. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8
Shipping and Air Transport

• 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

• 2. Notwithstanding the provisions of Article 7, profits derived by an enterprise of a Contracting State from a voyage of a ship or aircraft where the principal purpose of the voyage is to transport passengers or property between places in the other Contracting State may be taxed in that other State.

• 3. The provisions of paragraphs 1 and 2 shall also apply to profits referred to in those paragraphs derived by an enterprise of a Contracting State from the participation in a pool, a joint business or an international operating agency.

• 4. In this Article,

  • (a) the term “profits” includes:

    • (i) gross receipts and revenues derived directly from the operation of ships or aircraft in international traffic, and

    • (ii) interest that is incidental to the operation of ships or aircraft in international traffic;

  • (b) the term “operation of ships or aircraft in international traffic” by an enterprise, includes:

    • (i) the charter or rental of ships or aircraft,

    • (ii) the rental of containers and related equipment, and

    • (iii) the alienation of ships, aircraft, containers and related equipment,

    by that enterprise provided that such charter, rental or alienation is incidental to the operation by that enterprise of ships or aircraft in international traffic.

Article 9
Associated Enterprises

• 1. Where

  • (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

  • (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

  and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

• 2. Where a Contracting State includes in the profits of an enterprise of that State — and taxes accordingly — profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.

• 3. A Contracting State shall not change the profits of an enterprise in the circumstances referred to in paragraph l after the expiry of the time limits provided in its domestic laws and, in any case, after five years from the end of the year in which the profits which would be subject to such change would, but for the conditions referred to in paragraph l, have been attributed to that enterprise.

• 4. The provisions of paragraphs 2 and 3 shall not apply in the case of fraud, wilful default or neglect.

Article 10
Dividends

• 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

  • (a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends;

  • (b) notwithstanding the provisions of subparagraph (a), 10 per cent of the gross amount of the dividends if they are paid by a non-resident owned investment corporation that is a resident of Canada to a company that is a resident of the United Arab Emirates and that holds directly or indirectly at least 10 per cent of the voting power of the company paying the dividends;

  • (c) 15 per cent of the gross amount of the dividends in all other cases.

  The provisions of this paragraph shall not affect the taxation of the company on the profits out of which the dividends are paid.

• 3. The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

• 4. The provisions of paragraph 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

Article 11
Interest

• 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

• 3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and paid to the Government of the other Contracting State including a political subdivision and a local authority thereof, the Central Bank of that other State or any financial institution wholly owned by that Government shall be exempt from tax in the first-mentioned State.

• 4. For the purposes of paragraph 3, the terms “the Central Bank” and “financial institution wholly owned by the Government” mean:

  • (a) in the case of Canada,

    • (i) the Bank of Canada;

    • (ii) Export Development Canada; and

    • (iii) such other financial institution the capital of which is wholly owned by the Government of Canada as is specified and agreed in letters exchanged between the competent authorities of the Contracting States;

  • (b) in the case of the United Arab Emirates,

    • (i) the Central Bank of the United Arab Emirates;

    • (ii) the Abu Dhabi Investment Authority; and

    • (iii) such other financial institution the capital of which is wholly owned by the Government of the United Arab Emirates as is specified and agreed in letters exchanged between the competent authorities of the Contracting States.

• 5. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income which is subjected to the same taxation treatment as income from money lent by the laws of the State in which the income arises. However, the term “interest” does not include income dealt with in Article 8 or Article 10.

• 6. The provisions of paragraph 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 7. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the interest, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 12
Royalties

• 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.

• 3. Notwithstanding the provisions of paragraph 2,

  • (a) copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other artistic work (but not including royalties in respect of motion picture films nor royalties in respect of works on film or videotape or other means of reproduction for use in connection with television broadcasting), and

  • (b) royalties for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalty in connection with a rental or franchise agreement),

  arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State.

• 4. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright, patent, trade mark, design or model, plan, secret formula or process or other intangible property, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience, and includes payments of any kind in respect of motion picture films and works on film, videotape or other means of reproduction for use in connection with television.

• 5. The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 6. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the royalties, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 13
Capital Gains

• 1. Gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State.

• 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has or had in the other Contracting State or of movable property pertaining to a fixed base that is or was available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base may be taxed in that other State.

• 3. Gains from the alienation of ships or aircraft operated in international traffic by an enterprise of a Contracting State, or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.

• 4. Gains derived by a resident of a Contracting State from the alienation of:

  • (a) shares, the value of which is derived principally from immovable property situated in that other State; or

  • (b) an interest in a partnership or trust, the value of which is derived principally from immovable property situated in that other State,

  may be taxed in that other State.

• 5. Gains from the alienation of any property, other than that referred to in paragraphs l, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident.

• 6. The provisions of paragraph 5 shall not affect the right of either of the Contracting States to levy, according to its law, a tax on gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned Contracting State at any time during the five years immediately preceding the alienation of the property.

Article 14
Independent Personal Services

• 1. Income derived by an individual who is a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State unless the individual has a fixed base regularly available in the other Contracting State for the purpose of performing the activities. If the individual has or had such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base.

• 2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15
Dependent Personal Services

• 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

• 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

  • (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the calendar year concerned, and

  • (b) the remuneration is paid by, or on behalf of, a person who is not a resident of the other State, and such remuneration is not borne by a permanent establishment or a fixed base which the person has in the other State.

• 3. Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised aboard a ship or aircraft, operated in international traffic by an enterprise of a Contracting State, shall be taxable only in that State unless the remuneration is derived by a resident of the other Contracting State.

Article 16
Directors’ Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in that resident’s capacity as a member of the board of directors or a similar organ of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17
Artistes and Sportspersons

• 1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.

• 2. Where income in respect of personal activities exercised by an entertainer or a sportsperson in that individual’s capacity as such accrues not to the entertainer or sportsperson personally but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

• 3. The provisions of paragraph 2 shall not apply if it is established that neither the entertainer or the sportsperson nor persons related thereto participate directly or indirectly in the profits of the person referred to in that paragraph.

• 4. Notwithstanding the provisions of paragraphs 1 and 2, income derived from activities performed in a Contracting State by a resident of the other Contracting State:

  • (a) within the framework of a cultural exchange between the Contracting States, or

  • (b) in the context of a visit in the first-mentioned State of a non-profit organization of the other State, provided the visit is substantially supported by public funds,

  shall be exempt from tax in the first-mentioned Contracting State.

Article 18
Pensions and Annuities

• 1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise and according to the laws of that State.

Article 19
Government Service

(a) Salaries, wages and similar remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority or a local government thereof to an individual in respect of services rendered to that State or subdivision or authority or government in any other State shall be taxable only in the first-mentioned State.

(b) However, such salaries, wages and similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that Contracting State who:

(i) is a national of that Contracting State; or

(ii) did not become a resident of that Contracting State solely for the purpose of rendering the services.

• 2. The provisions of Articles 15, 16 and 17 shall apply to salaries, wages and similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority or a local government thereof.

Article 20
Students

Payments which a student, apprentice or business trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of that individual’s education or training receives for the purpose of that individual’s maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.

Article 21
Income of Government and Institutions

• 1. Notwithstanding the provisions of Article 10, dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State that is referred to in paragraph 2 of Article 4 and that is the beneficial owner of the dividends shall be taxable only in the other Contracting State provided that:

  • (a) the recipient, together with all other residents of the other Contracting State that are referred to in paragraph 2 of Article 4, neither own or control shares of the company representing more than 25 per cent of the value of all of its issued and outstanding shares nor control directly or indirectly in any manner whatever more than 25 per cent of the votes in respect of the shares of the company; and

  • (b) the recipient has not received the dividends in the course of carrying on an industrial or commercial activity.

  If the conditions set out in this paragraph are not met, the provisions of Article 10 shall apply.

• 2. Notwithstanding the provisions of Article 13, gains derived by a resident of a Contracting State that is referred to in paragraph 2 of Article 4 from the alienation of shares, the dividends on which would be exempt from taxation in the other Contracting State, shall be taxable only in the first-mentioned Contracting State.

Article 22
Other Income

• 1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

• 2. However, if such income is derived by a resident of a Contracting State from sources in the other Contracting State, such income may also be taxed in the State in which it arises, and according to the law of that State. Where such income is income from a trust which is a resident of a Contracting State, other than a trust to which contributions were deductible, the tax so charged in that Contracting State shall, provided that the income is taxable in the Contracting State in which the recipient is a resident, not exceed 15 per cent of the gross amount of the income.

IV. TAXATION OF CAPITAL

Article 23
Capital

• 1. Capital represented by immovable property owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other Contracting State.

• 2. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other Contracting State.

• 3. Capital represented by ships and aircraft operated in international traffic by an enterprise of a Contracting State, and by movable property pertaining to the operation of such ships and aircraft, shall be taxable only in that Contracting State.

• 4. All other elements of capital of a resident of a Contracting State shall be taxable only in that Contracting State.

V. METHODS FOR PREVENTION OF DOUBLE TAXATION

Article 24
Elimination of Double Taxation

• 1. In the case of Canada, double taxation shall be avoided as follows:

  • (a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions — which shall not affect the general principle hereof — and unless a greater deduction or relief is provided under the laws of Canada, tax payable in the United Arab Emirates on profits, income or gains arising in the United Arab Emirates shall be deducted from any Canadian tax payable in respect of such profits, income or gains;

  • (b) where, in accordance with any provision of the Convention, income derived or capital owned by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income or capital, take into account the exempted income or capital.

• 2. In the case of the United Arab Emirates, double taxation shall be avoided in accordance with the provisions of the tax laws of the United Arab Emirates.

• 3. For the purposes of this Article, profits, income or gains of a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other State.

VI. SPECIAL PROVISIONS

Article 25
Non-discrimination

• 1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.

• 2. The taxation on a permanent establishment which a resident of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on residents of that other State carrying on the same activities.

• 3. Nothing in this Article shall be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

• 4. Companies which are residents of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar companies which are residents of the first-mentioned State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of a third State, are or may be subjected.

• 5. In this Article, the term “taxation” means taxes which are the subject of this Convention.

Article 26
Mutual Agreement Procedure

• 1. Where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of this Convention, that person may, irrespective of the remedies provided by the domestic law of those States, address to the competent authority of the Contracting State of which that person is a resident an application in writing stating the grounds for claiming the revision of such taxation. To be admissible, the said application must be submitted within two years from the first notification of the action which gives rise to taxation not in accordance with the Convention.

• 2. The competent authority referred to in paragraph l shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.

• 3. A Contracting State shall not, after the expiry of the time limits provided in its domestic laws and, in any case, after five years from the end of the taxable period to which the income concerned was attributed, increase the tax base of a resident of either of the Contracting States by including therein items of income which have also been charged to tax in the other Contracting State. This paragraph shall not apply in the case of fraud, wilful default or neglect.

• 4. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention.

• 5. The competent authorities of the Contracting States may consult together for the elimination of double taxation in cases not provided for in the Convention and may communicate with each other directly for the purpose of applying the Convention.

Article 27
Exchange of Information

• 1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to, taxes. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

• 2. Nothing in paragraph 1 shall be construed so as to impose on a Contracting State the obligation:

  • (a) to carry out administrative measures at variance with the laws or the administrative practice of that or of the other Contracting State;

  • (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

  • (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

• 3. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall endeavour to obtain the information to which the request relates in the same way as if its own taxation were involved notwithstanding the fact that the other State does not, at that time, need such information.

Article 28
Members Of Diplomatic And Consular Missions

The provisions of this Convention shall not affect the fiscal privileges of members of diplomatic or consular missions under the general rules of international law or under the provisions of special agreements.

Article 29
Miscellaneous Rules

• 1. The provisions of this Convention shall not be construed to restrict in any manner any exemption, allowance, credit or other deduction accorded:

  • (a) by the laws of a Contracting State in the determination of the tax imposed by that State; or

  • (b) by any other agreement entered into by a Contracting State.

• 2. Nothing in the Convention shall be construed as preventing Canada from imposing a tax on amounts included in the income of a resident of Canada with respect to a partnership, trust, or controlled foreign affiliate, in which that resident has an interest.

• 3. For purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that, notwithstanding that paragraph, any dispute between them as to whether a measure falls within the scope of this Convention may be brought before the Council for Trade in Services, as provided by that paragraph, only with the consent of both Contracting States. Any doubt as to the interpretation of this paragraph shall be resolved under paragraph 4 of Article 26 or, failing agreement under that procedure, pursuant to any other procedure agreed to by both Contracting States.

VII. FINAL PROVISIONS

Article 30
Entry Into Force

• 1. This Convention shall be ratified and the instruments of ratification shall be exchanged as soon as possible.

• 2. The Convention shall enter into force upon the exchange of instruments of ratification and its provisions shall have effect:

  • (a) in respect of tax withheld at the source on amounts paid or credited to non-residents, on or after the first day of January in the year in which the Convention enters into force; and

  • (b) in respect of other taxes, for taxation years beginning on or after the first day of January of the year in which the Convention enters into force.

Article 31
Termination

This Convention shall continue in effect indefinitely but either Contracting State may, on or before June 30 of any calendar year beginning after the expiration of a period of ten years after the year of the exchange of instruments of ratification, give to the other Contracting State a notice of termination in writing through diplomatic channels; in such event, the Convention shall cease to have effect:

• (a) in Canada:

  • (i) in respect of tax withheld at the source on amounts paid or credited to non-residents, on or after the first day of January of the next following calendar year; and

  • (ii) in respect of other Canadian tax, for taxation years beginning on or after the first day of January of the next following calendar year;

• (b) in the United Arab Emirates:

  • (i) in respect of tax withheld at the source on amounts paid or credited to non-residents, on or after the first day of January of the next following calendar year; and

  • (ii) in respect of other taxes, for taxation years beginning on or after the first day of January of the next following calendar year.

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Convention.

DONE in duplicate at Abu Dhabi, this 9th day of June 2002, in the English, French and Arabic languages, each version being equally authentic.

At the signing of the Convention between the Government of Canada and the Government of the United Arab Emirates for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (hereinafter referred to as “the Convention”), the undersigned have agreed upon the following provisions which form an integral part of the Convention.

• 1. With reference to Articles 6 and 13 of the Convention, in the case of Canada, income from the alienation of immovable property shall be subjected to taxation in accordance with the provisions of paragraph 1 of Article 6 of the Convention.

• 2. With reference to Article 8 of the Convention, it is understood that:

  • (a) the provisions of paragraph 1 of that Article apply notwithstanding the provisions of Article 7 of the Convention; and

  • (b) the provisions of that Article apply to the sale of passage tickets on behalf of other enterprises and to a hotel business, provided that the keeping of the hotel is for no other purpose than to provide transit passengers with night accommodation, the cost of such a service being included in the price of the passage ticket.

• 3. With reference to Article 10 of the Convention, it is understood that nothing contained therein affects the fiscal privileges available under the doctrine of sovereign immunity to the Government of a Contracting State or local Governments, and their agencies and institutions.

• 4. With reference to Article 12 of the Convention, it is understood that the term “royalties” does not include payments in respect of the operation of mines or quarries or the exploitation of natural resources.

• 5. With reference to Article 22 of the Convention, it is understood that nothing contained therein affects the rights of the United Arab Emirates to tax income related to oil and natural resources situated in the United Arab Emirates in accordance with its tax laws.

• 6. A company which is a resident of a Contracting State and which has earnings in that State which may be taxed in a Contracting State in accordance with the provisions of Articles 6, 7 or 13 of the Convention, remains subject to the branch tax on such earnings but the rate of such tax shall not exceed 5 per cent.

• 7. For the purpose of paragraph 6, the term “earnings” means the profits in a year and previous years after deducting therefrom:

  • (a) business losses attributable to such permanent establishments (including losses from the alienation of property forming part of the business property of such permanent establishments) in such year and previous years,

  • (b) all taxes chargeable in that Contracting State on such profits, other than the additional tax referred to herein,

  • (c) the profits reinvested in that Contracting State, provided that where that Contracting State is Canada, the amount of such deduction shall be determined in accordance with the existing provisions of the law of Canada regarding the computation of the allowance in respect of investment in property in Canada, and any subsequent modification of those provisions which shall not affect the general principle hereof, and

  • (d) five hundred thousand Canadian dollars ($500,000) or its equivalent in United Arab Emirates currency, less any amount deducted

    • (i) by the company, or

    • (ii) by a person related thereto from the same or a similar business as that carried on by the company under this subparagraph (d);

    for the purposes of this subparagraph (d) a company is related to another company if one company directly or indirectly controls the other, or both companies are directly or indirectly controlled by the same person or persons, or if the two companies deal with each other not at arm’s length.

• 8. Where at any time an individual is treated for the purposes of taxation in Canada as having alienated a property and is taxed in Canada by reason thereof, that individual may elect in the individual’s annual return of income for the year of such alienation to be liable to tax in the United Arab Emirates in that year as if the individual had, immediately before that time, sold and repurchased such property for an amount equal to its fair market value at that time.

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Protocol.

DONE in duplicate at Abu Dhabi, this 9th day of June 2002, in the English, French and Arabic languages, each version being equally authentic.

The Government of Canada and the Government of the Republic of Moldova, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, have agreed as follows:

I. SCOPE OF THE CONVENTION

Article 1
Persons Covered

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2
Taxes Covered

• 1. This Convention shall apply to taxes on income imposed on behalf of a Contracting State, irrespective of the manner in which they are levied.

• 2. There shall be regarded as taxes on income all taxes imposed on total income or on elements of income, including taxes on gains from the alienation of movable or immovable property, as well as taxes on capital appreciation.

• 3. The existing taxes to which the Convention shall apply are in particular:

  • (a) in the case of Canada, the income taxes imposed by the Government of Canada under the Income Tax Act (hereinafter referred to as “Canadian tax”); and

  • (b) in the case of Moldova, the income tax (hereinafter referred to as “Moldovan tax”).

• 4. The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their respective taxation laws.

II. DEFINITIONS

Article 3
General Definitions

• 1. For the purposes of this Convention, unless the context otherwise requires:

  • (a) the terms “a Contracting State” and “the other Contracting State” mean, as the context requires, Canada or Moldova;

  • (b) the term “Canada”, used in a geographical sense, means the territory of Canada, including:

    • (i) any area beyond the territorial sea of Canada which, in accordance with international law and the laws of Canada, is an area within which Canada may exercise rights with respect to the seabed and subsoil and their natural resources, and

    • (ii) the sea and airspace above every area referred to in clause (i) in respect of any activity carried on in connection with the exploration for or the exploitation of the natural resources referred to therein;

  • (c) the term “Moldova” means the Republic of Moldova and, when used in a geographical sense, means its territory within its borders, consisting of soil, subsoil, waters and aerial space above soil and waters, over which the Republic of Moldova exercises its absolute and exclusive sovereignty and jurisdiction, in accordance with its internal legislation and international law;

  • (d) the term “person” includes an individual, a trust, a company, a partnership and any other body of persons;

  • (e) the term “company” means any body corporate or any entity that is treated as a body corporate for tax purposes;

  • (f) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

  • (g) the term “competent authority” means:

    • (i) in the case of Canada, the Minister of National Revenue or the Minister’s authorized representative, and

    • (ii) in the case of Moldova, the Minister of Finance or the Minister’s authorized representative;

  • (h) the term “national” means:

    • (i) any individual possessing the nationality of a Contracting State, and

    • (ii) any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State; and

  • (i) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except where the principal purpose is to transport passengers or property between places within the other Contracting State.

• 2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies.

Article 4
Resident

• 1. For the purposes of this Convention, the term “resident of a Contracting State” means:

  • (a) any person who, under the laws of that State, is liable to tax therein by reason of the person’s domicile, residence, place of management, place of registration, place of incorporation or any other criterion of a similar nature, but does not include any person who is liable to tax in that State in respect only of income from sources in that State, and

  • (b) that State or a political subdivi-sion or local authority thereof or any agency or instrumentality of any such State, subdivision or authority.

• 2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then the individual’s status shall be determined as follows:

  • (a) the individual shall be deemed to be a resident only of the State in which the individual has a permanent home available and if the individual has a permanent home available in both States, the individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

  • (b) if the State in which the individual’s centre of vital interests is situated cannot be determined, or if there is not a permanent home available to the individual in either State, the individual shall be deemed to be a resident only of the State in which the individual has an habitual abode;

  • (c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national; and

  • (d) if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

• 3. Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then its status shall be determined as follows:

  • (a) it shall be deemed to be a resident only of the State of which it is a national; or

  • (b) if it is a national of neither of the States, it shall be deemed to be a resident only of the State in which its place of effective management is situated.

• 4. Where by reason of the provisions of paragraph 1 a person other than an individual or a company is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of the Convention to such person. In the absence of such agreement, such person shall not be entitled to claim any relief or exemption from tax provided by the Convention.

Article 5
Permanent Establishment

• 1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

• 2. The term “permanent establishment” includes especially:

  • (a) a place of management;

  • (b) a branch;

  • (c) an office;

  • (d) a factory;

  • (e) a workshop; and

  • (f) a mine, an oil or gas well, a quarry or any other place relating to the exploration for or the exploitation of natural resources.

• 3. A building site, construction, assembly or installation project or supervisory activities in connection therewith constitute a permanent establishment only if such site, project or activities continue for a period of more than twelve months.

• 4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

  • (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

  • (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

  • (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

  • (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

  • (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character; or

  • (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e) provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

• 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person (other than an agent of an independent status to whom the provisions of paragraph 6 apply) is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

• 6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

• 7. Notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in the case of reinsurance, be deemed to have a permanent establishment in the other Contracting State if it collects insurance premiums in the territory of that other State or insures risks situated therein through a person that is not an agent of an independent status to whom paragraph 6 applies.

• 8. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

III. TAXATION OF INCOME

Article 6
Income From Immovable Property

• 1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

• 2. For the purposes of this Convention, the term “immovable property” shall have the meaning which it has for the purposes of the relevant tax law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property.

• 3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property and to income from the alienation of such property.

• 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7
Business Profits

• 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

• 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment and with all other persons.

• 3. In the determination of the profits of a permanent establishment, there shall be allowed those deductible expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses, whether incurred in the State in which the permanent establishment is situated or elsewhere. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment.

• 4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

• 5. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• 6. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8
Shipping and Air Transport

• 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

• 2. Notwithstanding the provisions of paragraph 1 and Article 7, profits derived by an enterprise of a Contracting State from the operation of ships or aircraft used principally to transport passengers or property exclusively between places in the other Contracting State may be taxed in that other State.

• 3. The provisions of paragraphs 1 and 2 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

• 4. For the purposes of this Article,

  • (a) the term “profits” includes:

    • (i) gross receipts and revenues derived directly from the operation of ships or aircraft in international traffic, and

    • (ii) interest on sums generated directly from the operation of ships or aircraft in international traffic if that interest is incidental to the operation; and

  • (b) the term “operation of ships or aircraft in international traffic” by an enterprise, includes:

    • (i) the charter or rental of ships or aircraft, and

    • (ii) the rental of containers and related equipment,

    by that enterprise if that charter or rental is incidental to the operation by that enterprise of ships or aircraft in international traffic.

Article 9
Associated Enterprises

• 1. Where

  • (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

  • (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

  and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations that differ from those that would be made between independent enterprises, then any income that would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, has not so accrued, may be included in the income of that enterprise and taxed accordingly.

• 2. Where a Contracting State includes in the income of an enterprise of that State — and taxes accordingly — income on which an enterprise of the other Contracting State has been charged to tax in that other State and the income so included is income that would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those that would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of tax charged therein on that income. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.

• 3. A Contracting State shall not change the income of an enterprise in the circumstances referred to in paragraph 1 after the expiry of the time limits provided in its national laws and, in any case, after five years from the end of the year in which the income that would be subject to such change would, but for the conditions referred to in paragraph 1, have accrued to that enterprise.

• 4. The provisions of paragraphs 2 and 3 shall not apply in the case of fraud, wilful default or neglect.

Article 10
Dividends

• 1. Dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

  • (a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company that controls directly or indirectly at least 25 per cent of the voting power in the company paying the dividends; and

  • (b) 15 per cent of the gross amount of the dividends in all other cases.

  The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

• 3. The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

• 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5. Where a company that is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

• 6. Nothing in this Convention shall be construed as preventing a Contracting State from imposing on the earnings of a company attributable to a permanent establishment in that State, a tax in addition to the tax that would be chargeable on the earnings of a company that is a national of that State, except that any additional tax so imposed shall not exceed 5 per cent of the amount of such earnings that have not been subjected to such additional tax in previous taxation years. For the purpose of this provision, the term “earnings” means the profits, including any gains, attributable to a permanent establishment in a Contracting State in a year and previous years after deducting therefrom all taxes, other than the additional tax referred to herein, imposed on such profits in that State.

Article 11
Interest

• 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

• 3. Notwithstanding the provisions of paragraph 2

  • (a) interest arising in a Contracting State and paid in respect of indebtedness of the government of that State or of a political subdivision or local authority thereof shall, if the interest is beneficially owned by a resident of the other Contracting State, be taxable only in that other State; and

  • (b) interest arising in a Contracting State and paid to a resident of the other Contracting State which was established and is operated exclusively to administer or provide benefits under one or more pension, retirement or other employee benefits plans shall not be taxable in the first-mentioned State provided that:

    • (i) the resident is the beneficial owner of the interest and is generally exempt from tax in the other State, and

    • (ii) the interest is not derived from carrying on a trade or a business or from a related person.

• 4. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income which is subjected to the same taxation treatment as income from money lent by the laws of the State in which the income arises. However, the term “interest” does not include income dealt with in Article 8 or Article 10.

• 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner of the interest or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount that would have been agreed upon by the payer and the beneficial owner of the interest in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 12
Royalties

• 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.

• 3. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright, patent, trade mark, design or model, plan, secret formula or process or other intangible property, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience, and includes payments of any kind in respect of motion picture films and works on film, videotape or other means of reproduction for use in connection with television.

• 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 6. Where, by reason of a special relationship between the payer and the beneficial owner of the royalties or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount that would have been agreed upon by the payer and the beneficial owner of the royalties in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 13
Capital Gains

• 1. Gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State.

• 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment that an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base, may be taxed in that other State.

• 3. Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or from containers used in, or other movable property pertaining to, the operation of such ships or aircraft shall be taxable only in that State.

• 4. Gains derived by a resident of a Contracting State from the alienation of:

  • (a) shares, the value of which is derived principally from immovable property situated in the other State, or

  • (b) an interest in a partnership or trust, the value of which is derived principally from immovable property situated in that other State,

  may be taxed in that other State. For the purposes of this paragraph, the term “immovable property” does not include any property, other than rental property, in which the business of the company, partnership or trust is carried on.

• 5. Gains from the alienation of any property, other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident.

• 6. The provisions of paragraph 5 shall not affect the right of a Contracting State to levy, according to its law, a tax on gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned State at any time during the six years immediately preceding the alienation of the property.

• 7. Where an individual who ceases to be a resident of a Contracting State, and immediately thereafter becomes a resident of the other Contracting State, is treated for the purposes of taxation in the first-mentioned State as having alienated a property and is taxed in that State by reason thereof, the individual may elect to be treated for the purposes of taxation in the other State as if the individual had, immediately before becoming a resident of that State, sold and repurchased the property for an amount equal to its fair market value at that time. However, this provision shall not apply to property any gain from which, arising immediately before the individual became a resident of that other State, may be taxed in that other State nor to immovable property situated in a third State.

Article 14
Independent Personal Services

• 1. Income derived by an individual who is a resident of a Contracting State in respect of professional or similar services of an independent character shall be taxable only in that State unless the individual has a fixed base regularly available in the other Contracting State for the purpose of performing the services. If the individual has or had such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base.

• 2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists, accountants and auditors.

Article 15
Dependent Personal Services

• 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

• 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

  • (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the calendar year concerned, and

  • (b) the remuneration is paid by, or on behalf of, a person who is not a resident of the other State, and

  • (c) the remuneration is not borne by a permanent establishment or a fixed base that the person has in the other State.

• 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in that State unless the remuneration is derived by a resident of the other Contracting State.

Article 16
Directors’ Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in that resident’s capacity as a member of the board of directors or a similar organ of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17
Artistes and Sportspersons

• 1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.

• 2. Where income in respect of personal activities exercised by an entertainer or a sportsperson in that individual’s capacity as such accrues not to the entertainer or sportsperson personally but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

Article 18
Pensions and Annuities

• 1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. Pensions arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise and according to the laws of that State. However, in the case of periodic pension payments, other than payments under the social security legislation in a Contracting State, the tax so charged shall not exceed 15 per cent of the gross amount of the payment.

• 3. Annuities arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise and according to the laws of that State, but the tax so charged shall not exceed 15 per cent of the portion thereof that is subject to tax in that State. However, this limitation does not apply to lump-sum payments arising on the surrender, cancellation, redemption, sale or other alienation of an annuity, or to payments of any kind under an annuity contract the cost of which was deductible, in whole or in part, in computing the income of any person who acquired the contract.

• 4. Notwithstanding anything in this Convention

  • (a) war pensions and allowances (including pensions and allowances paid to war veterans or paid as a consequence of damages or injuries suffered as a consequence of a war) arising in a Contracting State and paid to a resident of the other Contracting State shall be exempt from tax in that other State to the extent that they would be exempt from tax if received by a resident of the first-mentioned State; and

  • (b) benefits under the social security legislation in a Contracting State paid to a resident of the other Contracting State shall be taxable only in the first-mentioned State.

Article 19
Government Service

(a) Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

(b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

(i) is a national of that State; or

(ii) did not become a resident of that State solely for the purpose of rendering the services.

• 2. The provisions of Articles 15, 16 and 17 shall apply to salaries, wages and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

Article 20
Students

Payments which a student, apprentice or business trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of that individual’s education or training receives for the purpose of that individual’s maintenance, education or training shall not be taxed in that State, if such payments arise from sources outside that State.

Article 21
Other Income

• 1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

• 2. However, if such income is derived by a resident of a Contracting State from sources in the other Contracting State, such income may also be taxed in the State in which it arises and according to the law of that State. Where such income is income from a trust, other than a trust to which contributions were deductible, the tax so charged shall, if the income is taxable in the Contracting State in which the beneficial owner is a resident, not exceed 15 per cent of the gross amount of the income.

IV. METHODS FOR ELIMINATION OF DOUBLE TAXATION

Article 22
Elimination of Double Taxation

• 1. In the case of Canada, double taxation shall be avoided as follows:

  • (a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions — which shall not affect the general principle hereof — and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Moldova on profits, income or gains arising in Moldova shall be deducted from any Canadian tax payable in respect of such profits, income or gains;

  • (b) where, in accordance with any provision of the Convention, income derived by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income, take into account the exempted income.

• 2. In the case of Moldova, double taxation shall be avoided as follows:

  • (a) where a resident of Moldova derives income which, in accordance with the provisions of the Convention, may be taxed in Canada, Moldova shall allow as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in Canada;

  • (b) where in accordance with any provision of the Convention income derived by a resident of Moldova is exempt from tax in Moldova, Moldova may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income.

• 3. For the purposes of this Article, profits, income or gains of a resident of a Contracting State that may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other State.

V. SPECIAL PROVISIONS

Article 23
Non-discrimination

• 1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith that is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to individuals who are not residents of one or both of the Contracting States.

• 2. Stateless persons who are residents of a Contracting State shall not be subjected in either Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of the State concerned in the same circumstances are or may be subjected.

• 3. The taxation on a permanent establishment that an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities.

• 4. Nothing in this Article shall be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities that it grants to its own residents.

• 5. The provisions of this Article shall apply to taxes that are the subject of this Convention.

Article 24
Mutual Agreement Procedure

• 1. Where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of this Convention, that person may, irrespective of the remedies provided by the domestic law of those States, address to the competent authority of the Contracting State of which that person is a resident or, if that person’s case comes under paragraph 1 of Article 23, to that of the Contracting State of which that person is a national, an application in writing stating the grounds for claiming the revision of such taxation. To be admissible, the said application must be submitted within two years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.

• 2. The competent authority referred to in paragraph 1 shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.

• 3. A Contracting State shall not, after the expiry of the time limits provided in its national laws and, in any case, after five years from the end of the taxable period in which the income concerned has accrued, increase the tax base of a resident of either of the Contracting States by including therein items of income that have also been charged to tax in the other Contracting State. This paragraph shall not apply in the case of fraud, wilful default or neglect.

• 4. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention.

• 5. The competent authorities of the Contracting States may consult together for the elimination of double taxation in cases not provided for in the Convention and may communicate with each other directly for the purpose of applying the Convention.

• 6. If any difficulty or doubt arising as to the interpretation or application of the Convention cannot be resolved by the competent authorities pursuant to the preceding paragraphs of this Article, the case may be submitted for arbitration if both competent authorities and the taxpayer agree and the taxpayer agrees in writing to be bound by the decision of the arbitration board. The decision of the arbitration board in a particular case shall be binding on both States with respect to that case. The procedure shall be established in an exchange of notes between the Contracting States.

Article 25
Exchange of Information

• 1. The competent authorities of the Contracting States shall exchange such information as is relevant for carrying out the provisions of this Convention or of the domestic laws in the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to taxes. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

• 2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

  • (a) to carry out administrative measures at variance with the laws and the administrative practice of that or of the other Contracting State;

  • (b) to supply information that is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; or

  • (c) to supply information that would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

• 3. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall endeavour to obtain the information to which the request relates in the same way as if its own taxation were involved, even though the other State does not, at that time, need such information. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall endeavour to provide information under this Article in the form requested, such as depositions of witnesses and copies of unedited original documents (including books, papers, statements, records, accounts or writings), to the same extent such depositions and documents can be obtained under the laws and administrative practices of that other State with respect to its own taxes.

Article 26
Members of Diplomatic Missions and Consular Posts

• 1. Nothing in this Convention shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.

• 2. Notwithstanding the provisions of Article 4, an individual who is a member of a diplomatic mission, consular post or permanent mission of a Contracting State that is situated in the other Contracting State or in a third State shall be deemed for the purposes of the Convention to be a resident of the sending State if that individual is liable in the sending State to the same obligations in relation to tax on total income as are residents of that sending State.

• 3. The Convention shall not apply to international organizations, to organs or officials thereof and to persons who are members of a diplomatic mission, consular post or permanent mission of a third State or group of States, being present in a Contracting State and who are not liable in either Contracting State to the same obligations in relation to tax on their total income as are residents thereof.

VI. FINAL PROVISIONS

Article 27
Entry Into Force

The Convention shall enter into force on the date of the last written notification, delivered through diplomatic channels, confirming the completion of the procedures required by each Contracting State to bring the Convention into force and its provisions shall have effect:

• (a) in respect of taxes withheld at the source on amounts paid or credited to non-residents, on or after the first day of January of the calendar year next following the year in which the Convention enters into force, and

• (b) in respect of other taxes, for taxation years beginning on or after the first day of January of the calendar year next following the year in which the Convention enters into force.

Article 28
Termination

This Convention shall remain in force until terminated by a Contracting State. Either Contracting State may terminate the Convention after a period of five years following its entry into force by giving a written notice of termination, through diplomatic channels, at least six months before the end of any calendar year. In such event, the Convention shall cease to have effect:

• (a) in respect of taxes withheld at the source on amounts paid or credited to non-residents, on or after the first day of January of the calendar year next following the year in which the notice of termination is given, and

• (b) in respect of other taxes, for taxation years beginning on or after the first day of January of the calendar year next following the year in which the notice of termination is given

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Convention.

DONE in two originals at Chisinau on July 4, 2002, in the English, French and Moldovan languages, each version being equally authentic.

At the moment of signing the Convention between the Government of Canada and the Government of the Republic of Moldova for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, the undersigned have agreed upon the following provisions which shall form an integral part of the Convention.

• 1. With reference to paragraph 1 of Article 2, it is understood that, in the case of Moldova, the Convention shall also apply to taxes on income imposed on behalf of its administrative territorial units and its local authorities.

• 2. With reference to subparagraph (d) of paragraph 1 of Article 3, the term “person”, in the case of Moldova, includes a legal person.

• 3. It is understood that the term “political subdivision”, in the case of Moldova, includes an administrative territorial unit.

• 4. With reference to paragraph 2 of Article 9, it is understood that the other Contracting State is only required to make the appropriate adjustment to the extent it considers that the adjustment made in the first-mentioned State is justified both in principle and in amount.

• 5. The provisions of the Convention shall not be construed to restrict in any manner any exemption, allowance, credit or other deduction accorded by the laws of a Contracting State in the determination of the tax imposed by that State.

• 6. Nothing in the Convention shall be construed as preventing a Contracting State from imposing a tax on amounts included in the income of a resident of that State with respect to a partnership, trust, or controlled foreign affiliate, in which that resident has an interest.

• 7. The Convention shall not apply to any company, trust or partnership that is a resident of a Contracting State and is beneficially owned or controlled, directly or indirectly, by one or more persons who are not residents of that State, if the amount of the tax imposed on the income of the company, trust or partnership by that State is substantially lower than the amount that would be imposed by that State if all of the shares of the capital stock of the company or all of the interests in the trust or partnership, as the case may be, were beneficially owned by one or more persons who were residents of that State.

• 8. For the purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that, notwithstanding that paragraph, any dispute between them as to whether a measure falls within the scope of this Convention may be brought before the Council for Trade in Services, as provided by that paragraph, only with the consent of both Contracting States. Any doubt as to the interpretation of this paragraph shall be resolved under paragraph 4 of Article 24 of the Convention or, failing agreement under that procedure, pursuant to any other procedure agreed to by both Contracting States.

• 9. Where under any provision of this Convention any income is relieved from tax in a Contracting State and, under the law in force in the other Contracting State a person, in respect of that income, is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the relief to be allowed under the Convention in the first-mentioned Contracting State shall apply only to so much of the income as is taxed in the other Contracting State.

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Protocol.

DONE in two originals at Chisinau on July 4, 2002, in the English, French and Moldovan languages, each version being equally authentic.

The Government of Canada and the Government of the Kingdom of Norway, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have agreed as follows:

I. SCOPE OF THE CONVENTION

Article 1
Persons Covered

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2
Taxes Covered

• 1. The existing taxes to which this Convention shall apply are:

  • a) in the case of Canada, the taxes imposed by the Government of Canada under the Income Tax Act, (hereinafter referred to as “Canadian tax”);

  • b) in the case of Norway:

    • (i) the National Tax on Income (inntektsskatt til staten);

    • (ii) the County Municipal Tax on Income (inntektsskatt til fylkeskommunen);

    • (iii) the Municipal Tax on Income (inntektsskatt til kommunen);

    • (iv) the National Tax on Capital (formuesskatt til staten);

    • (v) the Municipal Tax on Capital (formuesskatt til kommunen);

    • (vi) the National Tax relating to Income and Capital from the Exploration for and the Exploitation of Submarine Petroleum Resources and Activities and Work relating thereto, Including Pipeline Transport of Petroleum Produced (skatt til staten vedrørende inntekt og formue i forbindelse med undersøkelse etter og utnyttelse av undersjøiske petroleumsforekomster og dertil knyttet virksomhet og arbeid, herunder rørledningstransport av utvunnet petroleum); and

    • (vii) the National Tax on Remuneration to Non-resident Artistes etc. (skatt til staten på honorarer til utenlandske artister mv.);

    (hereinafter referred to as “Norwegian tax”).

• 2. The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their respective taxation laws.

II. DEFINITIONS

Article 3
General Definitions

• 1. For the purposes of this Convention, unless the context otherwise requires:

  • a) the term “Canada”, used in a geographical sense, means the territory of Canada, including any area beyond the territorial sea of Canada which, in accordance with international law and the laws of Canada, is an area within which Canada may exercise rights with respect to the seabed and subsoil and their natural resources;

  • b) the term “Norway” means the Kingdom of Norway, including any area outside the territorial waters of the Kingdom of Norway where the Kingdom of Norway, according to Norwegian legislation and in accordance with international law, may exercise her rights with respect to the seabed and subsoil and their natural resources; the term does not comprise Svalbard, Jan Mayen and the Norwegian dependencies (“biland”);

  • c) the term “person” includes an individual, a trust, a company, a partnership and any other body of persons;

  • d) the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes;

  • e) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

  • f) the term “competent authority” means:

    • (i) in the case of Canada, the Minister of National Revenue or the Minister’s authorized representative,

    • (ii) in the case of Norway, the Minister of Finance or the Minister’s authorized representative;

  • g) the term “tax” means Canadian tax or Norwegian tax, as the context requires;

  • h) the term “national” means:

    • (i) any individual possessing the nationality of a Contracting State;

    • (ii) any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State;

  • i) the term “international traffic” means any voyage by a ship, vessel or aircraft operated by an enterprise of a Contracting State, except when the ship, vessel or aircraft is operated principally between places within the other Contracting State.

• 2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.

Article 4
Resident

• 1. For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of the person’s domicile, residence, place of management or any other criterion of a similar nature and also includes that State or a political subdivision or local authority thereof or any agency or instrumentality of any such State, subdivision or authority. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State.

• 2. Where by reason of the provisions of paragraph l an individual is a resident of both Contracting States, then the individual’s status shall be determined as follows:

  • a) the individual shall be deemed to be a resident only of the State in which the individual has a permanent home available; if the individual has a permanent home available in both States, the individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

  • b) if the State in which the individual’s centre of vital interests is situated cannot be determined, or if there is not a permanent home available to the individual in either State, the individual shall be deemed to be a resident only of the State in which the individual has an habitual abode;

  • c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

  • d) if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

• 3. Where by reason of the provisions of paragraph l a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of the Convention to such person.

Article 5
Permanent Establishment

• 1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

• 2. The term “permanent establishment” includes especially:

  • a) a place of management;

  • b) a branch;

  • c) an office;

  • d) a factory;

  • e) a workshop; and

  • f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

• 3. A building site, construction, assembly or installation project, or supervisory or consultancy activities connected therewith, constitute a permanent establishment only if such site, project or activities are continued for a period of more than 12 months.

• 4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

  • a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

  • b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

  • c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

  • d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

  • e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

  • f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

• 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person — other than an agent of an independent status to whom paragraph 6 applies — is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

• 6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

• 7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

III. TAXATION OF INCOME

Article 6
Income from Immovable Property

• 1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

• 2. For the purposes of this Convention, the term “immovable property” shall have the meaning, which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights with respect to the exploitation of, the right to exploit, the exploration for or the right to explore for, mineral deposits, sources and other natural resources. A ship or an aircraft shall not be regarded as immovable property.

• 3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property and to profits or income from the alienation of such property.

• 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7
Business Profits

• 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

• 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment and with all other persons.

• 3. In the determination of the profits of a permanent establishment, there shall be allowed those deductible expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses, whether incurred in the State in which the permanent establishment is situated or elsewhere.

• 4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

• 5. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• 6. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8
Shipping, Air Transport and Containers

• 1. Profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

• 2. Notwithstanding the provisions of paragraph 1 and Article 7, profits derived by an enterprise of a Contracting State from a voyage of a ship where the principal purpose of the voyage is to transport passengers or goods exclusively between places in the other Contracting State may be taxed in that other State. However, this paragraph shall not apply to coastal traffic, which is incidental or supplementary to international traffic.

• 3. The provisions of paragraphs 1 and 2 shall also apply to profits referred to in those paragraphs derived by an enterprise of a Contracting State from its participation in a pool, a joint business or an international operating agency.

• 4. Profits derived by an enterprise of a Contracting State from the use, maintenance or rental of containers (including trailers and related equipment for the transportation of containers) used for the transport of goods or merchandise in international traffic shall be taxable only in that Contracting State except insofar as those containers or trailers and related equipment are used for transport principally between places within the other Contracting State.

• 5. The provisions of paragraphs 1, 2, 3 and 4 shall apply to profits derived by the joint Norwegian, Danish and Swedish air transport consortium, Scandinavian Airlines System (SAS), but only in respect of the share thereof that is derived by SAS Norge ASA, the Norwegian partner of the Scandinavian Airlines System (SAS).

Article 9
Associated Enterprises

Where

• a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

• b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any income which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the income of that enterprise and taxed accordingly.

Article 10
Dividends

• 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

  • a) except in the case of dividends paid by a non-resident owned investment corporation that is a resident of Canada, 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 10 per cent of the voting power in the company paying the dividends;

  • b) 15 per cent of the gross amount of the dividends in all other cases.

  This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

• 3. Notwithstanding the provisions of paragraph 2, dividends arising in a Contracting State and paid to the other Contracting State or a political subdivision or local authority thereof or to any wholly-owned agency or instrumentality of that State, political subdivision or local authority, shall be taxable only in that other State. However, this provision shall only apply in circumstances as may be agreed from time to time between the competent authorities of the Contracting States.

• 4. The term “dividends” as used in this Article means income from shares, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income subjected to the same taxation treatment as income from shares by the taxation laws of the State of which the company making the distribution is a resident.

• 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 6. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

Article 11
Interest

• 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

• 3. Notwithstanding the provisions of paragraph 2,

  • a) interest arising in a Contracting State and paid in respect of a bond, debenture or other similar obligation of the government of that Contracting State or of a political subdivision or local authority thereof shall, provided that the interest is beneficially owned by a resident of the other Contracting State, be taxable only in that other State;

  • b) interest arising in Norway and paid to a resident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by Export Development Canada;

  • c) interest arising in Canada and paid to a resident of Norway shall be taxable only in Norway if the interest is received by, or the loan for which the interest is accrued, is made, insured or guaranteed by the Norwegian Guarantee Institute for Export Credits (GIEK) or AS Eksportfinans, or any similar institution financed or established by the Government of Norway, as may be agreed from time to time between the competent authorities of the Contracting States; and

  • d) interest arising in a Contracting State and paid to the other Contracting State or a political subdivision or local authority thereof or to any wholly-owned agency or instrumentality of that State, political subdivision or local authority, shall be taxable only in that other State. However, this provision shall only apply in circumstances as may be agreed from time to time between the competent authorities of the Contracting States.

• 4. The term “interest” for Canadian tax purposes includes any item which under the law of Canada is treated as interest and for Norwegian tax purposes includes any item which under the law of Norway is treated as interest. However, this term does not include any item which is treated as a dividend under the provisions of Article 10.

• 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 12
Royalties

• 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.

• 3. Notwithstanding the provisions of paragraph 2,

  • a) copyright royalties and other like payments in respect of the production or reproduction of any cultural, dramatic, musical or other artistic work (but not including royalties in respect of motion picture films nor royalties in respect of works on film or videotape or other means of reproduction for use in connection with television broadcasting), and

  • b) royalties for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalty in connection with a rental or franchise agreement),

  arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner of the royalties shall be taxable only in that other State.

• 4. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright, patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, and includes payments of any kind in respect of motion picture films and works on film or videotape for use in connection with television.

• 5. The provisions of paragraphs l, 2 and 3 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 6. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 13
Capital Gains

• 1. Gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State.

• 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.

• 3. Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to the operation of such ships or aircraft shall be taxable only in that State.

• 4. Gains derived by an enterprise of a Contracting State from the alienation of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise shall be taxable only in that Contracting State, except insofar as those containers or trailers and related equipment are used for transport principally between places within the other Contracting State.

• 5. Gains from the alienation of:

  • a) shares of a company, the value of which is derived primarily from immovable property situated in a Contracting State, or

  • b) an interest in a partnership or a trust, the value of which is derived primarily from immovable property situated in a Contracting State,

  may be taxed in that State. For the purposes of this paragraph, the term “immovable property” shall not include property, other than rental property, in which the business of the company, partnership or trust is carried on.

• 6. Gains from the alienation of any property, other than that referred to in paragraphs 1, 2, 3, 4 and 5 shall be taxable only in the Contracting State of which the alienator is a resident.

• 7. The provisions of paragraph 6 shall not affect the right of either of the Contracting States to levy, according to its law, a tax on gains from the alienation of any property (other than property to which the provisions of paragraph 8 apply) derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned State at any time during the six years immediately preceding the alienation of the property.

• 8. Where an individual who ceases to be a resident of a Contracting State, and immediately thereafter becomes a resident of the other Contracting State, is treated for the purposes of taxation in the first-mentioned State as having alienated a property and is taxed in that State by reason thereof, the individual may elect to be treated for purposes of taxation in the other State as if the individual had, immediately before becoming a resident of that State, sold and repurchased the property for an amount equal to the lesser of its fair market value at that time and the proceeds of disposition considered to have been realized by the individual in the first-mentioned State under that alienation. However, this provision shall not apply to property, any gain from which that other State could have taxed in accordance with the provisions of this Article, other than this paragraph, if the individual had realized the gain before becoming a resident of that other State.

• 9. Where a resident of a Contracting State alienates property in the course of an organization, reorganization, amalgamation, division or similar transaction and profit, gain or income with respect to such alienation is not recognized for the purpose of taxation in that State, if requested to do so by the person who acquires the property, the competent authority of the other State may agree, subject to terms and conditions satisfactory to such competent authority, to defer the recognition of the profit, gain or income with respect to such property for the purpose of taxation in that other State until such time and in such manner as may be stipulated in the agreement.

Article 14
Independent Personal Services

• 1. Income derived by an individual who is a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State. However, such income may also be taxed in the other Contracting State if:

  • a) the individual is present in the other State for a period or periods exceeding in the aggregate 183 days in any period of twelve months commencing or ending in the fiscal year concerned, but only so much thereof as is attributable to services performed in that other State; or

  • b) the individual has or had a fixed base regularly available in that other State for the purpose of performing the activities, but only so much thereof as is attributable to that fixed base.

• 2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15
Dependent Personal Services

• 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

• 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

  • a) the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in any period of twelve months commencing or ending in the fiscal year concerned;

  • b) the remuneration is paid by, or on behalf of, an employer who is a resident of the State of which the recipient is a resident, and whose activity does not consist of the hiring out of labour; and

  • c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in that other State.

• 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State may be taxed in that State.

• 4. Where a resident of a Contracting State derives remuneration in respect of an employment exercised aboard an aircraft operated in international traffic by the Scandinavian Airlines System (SAS) consortium, such remuneration shall be taxable only in the Contracting State of which the recipient is a resident.

Article 16
Directors’ Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in the capacity as a member of the board of directors or a similar organ of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17
Artistes and Sportspersons

• 1. Notwithstanding the provisions of Articles 7, 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that individual’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.

• 2. Where income in respect of personal activities exercised by an entertainer or a sportsperson in that individual’s capacity as such accrues not to the entertainer or sportsperson personally but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

• 3. The provisions of paragraphs 1 and 2 shall not apply to income derived by an entertainer or sportsperson from activities performed in a Contracting State if the visit to that Sate is substantially supported by public funds of the other Contracting State or a political subdivision or a local authority thereof. In such case, the income shall be taxable only in the State of which the entertainer or sportsperson is a resident.

Article 18
Pensions, Annuities and Alimony

• 1. Pensions, including social security payments, and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. Pensions, including social security payments, arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise, and according to the laws of that State. However, in the case of periodic pension payments including social security payments, the tax so charged shall not exceed 15 per cent of the gross amount of the payment.

• 3. Annuities arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise, and according to the laws of that State, but the tax so charged shall not exceed 15 per cent of the portion thereof that is subject to tax in that State. However, this limitation does not apply to lump-sum payments arising on the surrender, cancellation, redemption, sale or other alienation of an annuity, or to payments of any kind under an annuity contract the cost of which was deductible, in whole or in part, in computing the income of any person who acquired the contract.

• 4. Notwithstanding anything in this Convention:

  • a) war veterans pensions and similar allowances arising in Canada and paid to a resident of Norway shall be exempt from tax in Norway so long as they are not subject to Canadian tax; and

  • b) alimony and other maintenance payments paid to a resident of a Contracting State shall be taxable only in that State. However, any alimony or other maintenance payment paid by a resident of one of the Contracting States to a resident of the other Contracting State, shall, to the extent it is not allowable as a relief to the payer, be taxable only in the first-mentioned State.

Article 19
Government Service

(a) Salaries, wages, and other similar remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

b) However, such salaries, wages, and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

(i) is a national of that State; or

(ii) did not become a resident of that State solely for the purpose of rendering the services.

• 2. The provisions of paragraph 1 shall not apply to remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

Article 20
Students

Payments which a student, apprentice or business trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of that individual’s education or training receives for the purpose of that individual’s maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.

Article 21
Offshore Activities

• 1. The provisions of this Article shall apply notwithstanding any other provision of this Convention.

• 2. A person who is a resident of a Contracting State and carries on activities in the other Contracting State in connection with the exploration or exploitation of the seabed and subsoil and their natural resources situated in that other State shall, subject to paragraphs 3 and 4, be deemed in relation to those activities to be carrying on a business in that other State through a permanent establishment or fixed base situated therein.

• 3. The provisions of paragraph 2 and subparagraph b) of paragraph 6 shall not apply where the activities referred to therein are carried on for a period or periods not exceeding in the aggregate 30 days in any 12 month period. However, for the purposes of this paragraph:

  • a) where an enterprise of a Contracting State carrying on offshore activities in the other Contracting State is associated with another enterprise carrying on substantially similar offshore activities there, the former enterprise shall be deemed to be carrying on all such activities of the latter enterprise, with the exception of activities which are carried on at the same time as its own activities; and

  • b) two enterprises shall be deemed to be associated if one participates directly or indirectly in the management or control of the other, or if the same persons participate directly or indirectly in the management or control of both enterprises.

• 4. Profits derived by an enterprise of a Contracting State from the transportation of supplies or personnel by ship or aircraft to a location, or between locations, where activities in connection with the exploration or exploitation of the seabed and subsoil and their natural resources are being carried on in a Contracting State, or from the operation of tugboats and other vessels auxiliary to such activities, shall be taxable only in the first-mentioned State. The provisions of this paragraph shall apply only when such ships, vessels or aircraft are operated in international traffic.

a) Subject to subparagraph b) of this paragraph, salaries, wages and similar remuneration derived by a resident of a Contracting State in respect of an employment connected with the exploration or exploitation of the seabed and subsoil and their natural resources situated in the other Contracting State may, to the extent that the duties are performed offshore in that other State, be taxed in that other State. However, such remuneration shall be taxable only in the first-mentioned State if the employment is carried on offshore for an employer who is not a resident of the other State and for a period or periods not exceeding in the aggregate 30 days in any 12-month period.

b) salaries, wages and similar remuneration derived by a resident of a Contracting State in respect of an employment exercised aboard a ship or aircraft engaged in the transportation of supplies or personnel to a location, or between locations, where activities connected with the exploration or exploitation of the seabed and subsoil and their natural resources are being carried on in the other Contracting State, or in respect of an employment exercised aboard a tugboat and other vessels operated auxiliary to such activities, may be taxed in the Contracting State of which the enterprise carrying on the activities is a resident. The provisions of this subparagraph shall apply only when such ships, vessels or aircraft are operated in international traffic.

• 6. Gains derived by a resident of a Contracting State from the alienation of:

  • a) exploration or exploitation rights; or

  • b) property situated in the other State and used in connection with the exploration or exploitation of the seabed and subsoil and their natural resources situated in that other State; or

  • c) shares of a company or an interest in a partnership or a trust deriving their value or the greater part of their value directly or indirectly from such rights or such property or from such rights and such property taken together,

  may be taxed in that other State. In this paragraph, the term “exploration or exploitation rights” means rights to assets to be produced by the exploration or exploitation of the seabed and subsoil and their natural resources in the other Contracting State, including rights to interests in or to the benefit of such assets.

• 7. For the purposes of this Article, the term “Canada” and “Norway”, as the case may be, includes the sea or airspace above the area within which Canada or Norway, as the case may be, in accordance with international law and its national law, may exercise rights with respect to the seabed and subsoil and their natural resources.

Article 22
Other Income

• 1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State which are not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

• 2. However, if such income is derived by a resident of a Contracting State from sources in the other Contracting State, such income may also be taxed in the State in which it arises, and according to the laws of that State. Where such income is income from a trust, other than a trust to which contributions were deductible, the tax so charged shall, provided that the income is taxable in the Contracting State in which the beneficial owner is a resident, not exceed 15 per cent of the gross amount of the income.

IV. TAXATION OF CAPITAL

Article 23
Capital

• 1. Capital represented by immovable property owned by a resident of a Contracting State and situated in the other Contracting State may be taxed in that other State.

• 2. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other State.

• 3. Capital of an enterprise of a Contracting State represented by ships or aircraft operated in international traffic and by movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.

• 4. Capital of an enterprise of a Contracting State represented by containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise shall be taxable only in that State, except insofar as those containers or trailers and related equipment are used for transport principally between places within the other Contracting State.

• 5. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

V. METHODS FOR AVOIDANCE OF DOUBLE TAXATION

Article 24
Avoidance of Double Taxation

• 1. In the case of Canada, double taxation shall be avoided as follows:

  • a) Subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions — which shall not affect the general principle hereof — and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Norway on profits, income or gains arising in Norway shall be deducted from any Canadian tax payable in respect of such profits, income or gains; and

  • b) where, in accordance with any provision of the Convention, income derived or capital owned by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income or capital, take into account the exempted income or capital.

• 2. Subject to the provisions of the laws of Norway regarding the allowance as a credit against Norwegian tax of tax payable in a territory outside Norway (which shall not affect the general principle hereof);

  • a) Where a resident of Norway derives income or owns elements of capital which, in accordance with the provisions of this Convention, may be taxed in Canada, Norway shall allow:

    • i) as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in Canada; and

    • ii) as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in Canada.

    Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or same elements of capital which may be taxed in Canada.

  • b) Where in accordance with any provision of the Convention income derived or capital owned by a resident of Norway is exempt from tax in Norway, Norway may nevertheless include such income or capital in the tax base, but shall allow as a deduction from the Norwegian tax on income or capital that part of the income tax or capital tax, as the case may be, which is attributable to the income derived from Canada, or the capital owned in Canada.

• 3. For the purposes of this Article, profits, income or gains of a resident of a Contracting State which are taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other State.

VI. SPECIAL PROVISIONS

Article 25
Non-discrimination

• 1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, that is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

• 2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities.

• 3. Nothing in this Article shall be construed as obliging a Contracting State to grant to persons being resident in the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities or any other personal circumstances which it grants to its own residents or to grant reliefs with respect to dividends or other payments to a company resident in the other Contracting State.

• 4. Except where the provisions of Article 9, paragraph 7 of Article 11 or paragraph 7 of Article 12 apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State. Similarly, any debts of an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable capital of such enterprise, be deductible under the same conditions as if they had been contracted to a resident of the first-mentioned State.

• 5. The provisions of paragraph 4 shall not affect the operation of any provision of the taxation laws of a Contracting State:

  • a) relating to the deductibility of interest and which is in force on the date of signature of this Convention (including any subsequent modification of such provisions that does not change the general nature thereof); or

  • b) adopted after such date by a Contracting State and which is designed to ensure that a person who is not a resident of that State does not enjoy, under the laws of that State, a tax treatment that is more favourable than that enjoyed by residents of that State.

• 6. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned state, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of a third state, are or may be subjected.

• 7. Nothing in this Convention shall be construed as preventing a Contracting State from imposing on the earnings attributable to permanent establishments in that State of a company which is a resident of the other Contracting State or on the earnings attributable to the alienation of immovable property situated in that State of a company which is a resident of the other Contracting State carrying on a trade in immovable property, tax in addition to the tax which would be chargeable on the earnings of a company which is a resident of the first-mentioned State, provided that the rate of any additional tax so imposed shall not exceed 5 per cent of the amount of such earnings which have not been subjected to such additional tax in previous taxation years.

• 8. For the purpose of paragraph 7, the term “earnings” means:

  • a) the earnings attributable to the alienation of such immovable property situated in a Contracting State as may be taxed by that State pursuant to the provisions of Article 6 or of paragraph 1 of Article 13; and

  • b) the profits attributable to permanent establishments in a Contracting State (including gains from the alienation of property forming part of the business property of such permanent establishments) in a year and previous years after deducting therefrom:

    • (i) business losses attributable to such permanent establishments (including losses from the alienation of property forming part of the business property of such permanent establishments) in such year and previous years; and

    • (ii) all taxes, other than the additional tax referred to in paragraph 6, imposed on such profits in that State; and

    • (iii) the profits reinvested in that State, provided that where that State is Canada, the amount of such deduction shall be determined in accordance with the existing provisions of the law of Canada regarding the computation of the allowance in respect of investment in property in Canada, and any subsequent modification of those provisions which shall not affect the general principle thereof; and

    • (iv) five hundred thousand Canadian dollars ($500,000), or its equivalent in Norwegian currency, less any amount deducted in that State under this subparagraph by the company or a company associated therewith with respect to the same or a similar business; for the purposes of this subparagraph a company is associated with another company if either company participates directly or indirectly in the management or control of the other company or if the same persons participate directly or indirectly in the management or control of both companies.

• 9. In this Article, the term “taxation” means taxes which are the subject of this Convention.

Article 26
Mutual Agreement Procedure

• 1. Where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of this Convention, that person may, irrespective of the remedies provided by the domestic law of those States, address to the competent authority of the Contracting State of which the person is a resident an application in writing stating the grounds for claiming the revision of such taxation. To be admissible, the said application must be submitted within two years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.

• 2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention.

• 3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.

Article 27
Exchange of Information

• 1. The competent authorities of the Contracting States shall exchange such information as is relevant for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes imposed by the Contracting States insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to, taxes in that State. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

• 2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

  • a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

  • b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

  • c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

• 3. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall endeavour to obtain the information to which the request relates in the same way as if its own taxation was involved notwithstanding the fact that the other State does not, at that time, need such information. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall endeavour to provide information under this Article in the form requested, such as depositions of witnesses and copies of unedited original documents (including books, papers, statements, records, accounts or writings), to the same extent such depositions and documents can be obtained under the laws and administrative practices of that other State with respect to its own taxes.

Article 28
Assistance in Collection

• 1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in paragraph 8, together with interest, costs, additions to such taxes and civil penalties, referred to in this Article as a “revenue claim”. The provisions of this Article are not restricted by Article 1.

• 2. An application for assistance in the collection of a revenue claim shall include a certification by the competent authority of the applicant State that, under the laws of that State, the revenue claim has been finally determined. For the purposes of this Article, a revenue claim is finally determined when the applicant State has the right under its internal law to collect the revenue claim and all administrative and judicial rights of the taxpayer to restrain collection in the applicant State have lapsed or been exhausted.

• 3. A revenue claim of the applicant State may be accepted for collection by the competent authority of the requested State only if it is finally determined by the applicant State after the date that is 10 years before the date on which the Convention enters into force. Subject to the provisions of paragraph 7, a revenue claim that is accepted shall be collected by the requested State as though it were the requested State’s own revenue claim finally determined in accordance with the laws applicable to the collection of the requested State’s own taxes.

• 4. Where an application for collection of a revenue claim in respect of a taxpayer is accepted by Canada or Norway, the revenue claim shall be treated, if that State is Canada, as an amount payable under the Income Tax Act of Canada, or if that State is Norway, as an amount payable under Norwegian law, the collection of which is not subject to any restriction.

• 5. Nothing in this Article shall be construed as creating or providing any rights of administrative or judicial review of the applicant State’s finally determined revenue claim by the requested State, based on any such rights that may be available under the laws of either State. If, at any time pending execution of a request for assistance under this Article, the applicant State loses the right under its internal law to collect the revenue claim, the competent authority of the applicant State shall promptly withdraw the request for assistance in collection.

• 6. Unless the competent authorities of the States otherwise agree, the ordinary costs incurred in providing collection assistance shall be borne by the requested State and any extraordinary costs so incurred shall be borne by the applicant State.

• 7. A revenue claim of the applicant State accepted for collection shall not have in the requested State any priority accorded to the revenue claims of the requested State even if the recovery procedure used is the one applicable to its own revenue claims. A revenue claim of the applicant State shall not be recovered by imprisonment for debt of the debtor in the requested State.

• 8. Notwithstanding the provisions of Article 2, the provisions of this Article shall apply to all categories of taxes collected by or on behalf of the Government of a Contracting State.

• 9. Nothing in this Article shall be construed as imposing on either Contracting State the obligation to carry out administrative measures at variance with its laws or administrative practice or that would be contrary to its fundamental principles of tax policy or its public policy (ordre public).

• 10. The competent authorities of the States shall agree upon the mode of application of this Article, including agreement to ensure comparable levels of assistance to each of the States.

Article 29
Members of Diplomatic Missions and Consular Posts

• 1. Nothing in this Convention shall affect the fiscal privileges of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.

• 2. The Convention shall not apply to international organizations, to organs or officials thereof and to persons who are members of a diplomatic mission, consular post or permanent mission of a third State or group of States, being present in a Contracting State and who are not liable in either Contracting State to the same obligations in relation to tax on their total income as are residents thereof.

Article 30
Miscellaneous Rules

• 1. The provisions of this Convention shall not be construed to restrict in any manner any exclusion, exemption, deduction, credit, or other allowance now or hereafter accorded by the laws of a Contracting State in the determination of the tax imposed by that State.

• 2. Nothing in the Convention shall be construed as preventing a Contracting State from imposing a tax on amounts included in the income of a resident of that State with respect to a partnership, trust or company, in which the resident has an interest.

• 3. The Convention shall not apply to any company, trust or other entity that is a resident of a Contracting State and is beneficially owned or controlled, directly or indirectly, by one or more persons who are not residents of that State, if the amount of the tax imposed on the income or capital of the company, trust or other entity by that State is substantially lower than the amount that would be imposed by that State (after taking into account any reduction or offset of the amount of tax in any manner, including a refund, reimbursement, contribution, credit, allowance to the company, trust or partnership, or to any other person) if all of the shares of the capital stock of the company or all of the interests in the trust or other entity, as the case may be, were beneficially owned by one or more individuals who were residents of that State.

• 4. For the purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that, notwithstanding that paragraph, any dispute between them as to whether a measure falls within the scope of the convention may be brought before the Council for Trade in Services, as provided by that paragraph, only with the consent of both Contracting States. Any doubt as to the interpretation of this paragraph shall be resolved under paragraph 3 of Article 26 or, failing agreement under that procedure, pursuant to any other procedure agreed to by both Contracting States.

VII. FINAL PROVISIONS

Article 31
Entry into Force

• 1. This Convention shall enter into force upon the later of the dates on which the respective Governments have notified each other in writing through diplomatic channels that the formalities constitutionally required in their respective States have been complied with, and its provisions shall have effect:

  • a) in respect of tax withheld at the source on amounts paid or credited to non-residents on or after the first day of January in the calendar year next following that in which the Convention enters into force, and

  • b) in respect of any other tax for any taxation or income year beginning on or after the first day of January in the calendar year next following that in which the Convention enters into force.

• 2. The l966 Convention shall cease to have effect with respect to taxes to which this Convention applies in accordance with the provisions of paragraph 1.

• 3. The 1966 Convention shall terminate on the last date on which it has effect in accordance with the foregoing provisions of this Article.

• 4. The termination of the l966 Convention as provided in paragraph 3 shall not revive the Agreement between the Government of Canada and the Government of the Kingdom of Norway constituted by the Exchange of Notes concerning reciprocal exemption from income tax on profits accruing from the operation of ships, dated May 2nd, 1929. Upon the entry into force of this Convention the last-mentioned Agreement shall terminate.

• 5. In this Article the term “the 1966 Convention” means the Convention between the Government of Canada and the Government of the Kingdom of Norway for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income signed at Ottawa on November 23, 1966.

Article 32
Termination

This Convention shall continue in effect indefinitely but either Contracting State may, on or before June 30 in any calendar year after the year of its entry into force, give to the other Contracting State a notice of termination in writing through diplomatic channels; in such event, the Convention shall cease to have effect:

• a) in respect of tax withheld at the source on amounts paid or credited to non-residents on or after the first day of January of the next following calendar year; and

• b) in respect of any other tax for any taxation or income year beginning on or after the first day of January of the next following calendar year.

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Convention.

DONE in duplicate at Ottawa, this 12th day of July 2002, in the English, French and Norwegian languages, each version being equally authentic.

The Government of Canada and the Government of the Kingdom of Belgium, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have agreed as follows:

I. SCOPE OF THE CONVENTION

Article 1
Persons Covered

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2
Taxes Covered

• 1. This Convention shall apply to taxes on income and on capital imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.

• 2. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains from the alienation of movable or immovable property, as well as taxes on capital appreciation.

• 3. The existing taxes to which the Convention shall apply are in particular:

  • (a) in the case of Belgium:

    • (i) the individual income tax;

    • (ii) the corporate income tax;

    • (iii) the income tax on legal entities;

    • (iv) the income tax on non-residents;

    • (v) the supplementary crisis contribution;

    including the prepayments, the surcharges on these taxes and prepayments, and the supplements to the individual income tax, (hereinafter referred to as “Belgian tax”);

  • (b) in the case of Canada: the taxes imposed by the Government of Canada under the Income Tax Act, (hereinafter referred to as “Canadian tax”).

• 4. The Convention shall apply also to any identical or substantially similar taxes, which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes, which have been made in their respective taxation laws.

II. DEFINITIONS

Article 3
General Definitions

• 1. For the purposes of this Convention, unless the context otherwise requires:

  (a) (i) the term “Belgium” used in a geographical sense means the national territory, including the territorial sea, and any other area in the sea or in the air within which Belgium, in accordance with international law, exercises sovereign rights or its jurisdiction;

  (ii) the term “Canada” used in a geographical sense means the territory of Canada, including:

  (A) any area beyond the territorial seas of Canada which, under the laws of Canada and in accordance with international law, is an area within which Canada may exercise rights with respect to the seabed and subsoil and their natural resources;

  (B) the waters and airspace above every area referred to in clause (A) in respect of any activity carried on in connection with the exploration for or the exploitation of the natural resources referred to therein;

  • (b) the terms “a Contracting State” and “the other Contracting State” mean Canada or Belgium as the context requires;

  • (c) the term “person” includes an individual, a company, a partnership and any other body of persons, including, in the case of Canada, an estate and a trust;

  • (d) the term “company” means any body corporate or any other entity which is treated as a body corporate for tax purposes;

  • (e) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

  • (f) the term “competent authority” means:

    • (i) in the case of Belgium: the Minister of Finance or the Minister’s authorized representative;

    • (ii) in the case of Canada: the Minister of National Revenue or the Minister’s authorized representative, and,

  • (g) the term “national” means:

    • (i) any individual possessing the nationality of a Contracting State;

    • (ii) any legal person, partnership and association deriving its status as such from the law in force in a Contracting State;

  • (h) the term “international traffic” means any voyage of a ship or aircraft operated by an enterprise of a Contracting State to transport passengers or goods except where the principal purpose of the voyage is to transport passengers or goods exclusively between places in the other Contracting State.

• 2. As regards the application of the Convention by a Contracting State at any time, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has at that time under the law of that State concerning the taxes to which the Convention applies, any meaning under that law prevailing over a meaning given to the term under other laws of that State.

Article 4
Resident

• 1. For the purposes of this Convention, the term “resident of a Contracting State” means:

  • (a) any person who, under the laws of that State, is liable to tax therein by reason of the person’s domicile, residence, place of management or any other criterion of a similar nature;

  • (b) that State, a political subdivision or a local authority thereof or any legal entity owned by that State, subdivision or authority.

  This term does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.

• 2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then the individual’s status shall be determined as follows:

  • (a) the individual shall be deemed to be a resident only of the State in which the individual has a permanent home available; if the individual has a permanent home available in both States, the individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

  • (b) if the State in which the individual’s centre of vital interests is situated cannot be determined, or if there is not a permanent home available to the individual in either State, the individual shall be deemed to be a resident only of the State in which the individual has an habitual abode;

  • (c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

  • (d) if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

• 3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall be deemed not to be a resident of either Contracting State for the purposes of Articles 6 to 22 inclusive.

Article 5
Permanent Establishment

• 1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

• 2. The term “permanent establishment” includes especially:

  • (a) a place of management;

  • (b) a branch;

  • (c) an office;

  • (d) a factory;

  • (e) a workshop; and

  • (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

• 3. A building site or construction or installation project constitutes a permanent establishment only if it lasts for more than twelve months.

• 4. The use of an installation or drilling rig or ship in a Contracting State to explore for or exploit natural resources constitutes a permanent establishment only if such use is for more than three months in any twelve month period.

• 5. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

  • (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

  • (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

  • (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

  • (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;

  • (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

  • (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e) provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

• 6. Notwithstanding the provisions of paragraphs 1 and 2, where a person — other than an agent of an independent status to whom paragraph 7 applies — is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 5 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

• 7. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

• 8. Notwithstanding the provisions of paragraphs 6 and 7, an insurance enterprise of a Contracting State shall, except with regard to reinsurance, be deemed to have a permanent establishment in the other State if it collects premiums in that other State, or insure risks situated therein, through a representative referred to in paragraph 6 or through an agent of an independent status who has, and habitually exercises, an authority to conclude contracts in the name of the enterprise.

• 9. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

III. TAXATION OF INCOME

Article 6
Income From Immovable Property

• 1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

• 2. The term “immovable property” shall have the meaning, which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property.

• 3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property and to income from the alienation of such property.

• 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7
Business Profits

• 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

• 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment and with all other associated persons.

• 3. In determining the profits of a permanent establishment, there shall be allowed those deductible expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.

• 4. In the absence of appropriate accounting or other data permitting the determination of the amount of the profits of an enterprise of a Contracting State which is attributable to its permanent establishment situated in the other State, the tax may, in particular, be charged in that other State in accordance with its domestic legislation, having regard to the normal profits of similar enterprises engaged in the same or similar activities under the same or similar conditions.

• 5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

• 6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• 7. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8
Shipping and Air Transport

• 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

• 2. Notwithstanding the provisions of Article 7, profits which are not covered by paragraph 1 and which are derived from the operation of ships used to transport passengers or goods exclusively between places in a Contracting State may be taxed in that State.

• 3. The provisions of paragraphs 1 and 2 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

• 4. In this Article,

  • (a) the term “profits” includes interest on funds directly connected with the operation of ships or aircraft in international traffic, provided that such interest is incidental to the operation;

  • (b) the term “operation of ships or aircraft in international traffic” includes:

    • (i) the charter or rental of ships or aircraft, or

    • (ii) the rental of containers and related equipment,

    by an enterprise of a Contracting State, provided that such charter or rental is incidental to the operation by that enterprise of ships or aircraft in international traffic.

Article 9
Associated Enterprises

• 1. Where

  • (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

  • (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

  and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any income or profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the income or profits of that enterprise and taxed accordingly.

• 2. Where a Contracting State includes in the income or profits of an enterprise of that State — and taxes accordingly — income or profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the income or profits so included are income or profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make such an adjustment as it considers appropriate to the amount of tax charged therein on that income or those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention.

• 3. A Contracting State shall not change the income or profits of an enterprise in the circumstances referred to in paragraph 1 after the expiry of the time limits provided in its national laws and, in any case, after six years from the end of the year in which the income or profits which would be subject to such change would have accrued to an enterprise of that State.

• 4. The provisions of paragraphs 2 and 3 shall not apply in the case of fraud or wilful default.

Article 10
Dividends

• 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State the tax so charged shall not exceed:

  • (a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which owns directly at least 10 per cent of the voting stock of the company paying the dividends;

  • (b) 15 per cent of the gross amount of the dividends in all other cases.

  This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

• 3. The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income — even paid in the form of interest — which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the payment is a resident.

• 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

• 6. Nothing in this Convention shall be construed as preventing Canada from imposing a tax on the earnings attributable to permanent establishments in Canada of a company which is a resident of Belgium, in addition to the tax which would be chargeable on the earnings of a company which is a resident of Canada, provided that the rate of any additional tax so imposed shall not exceed 5 per cent of the amount of such earnings which have not been subjected to such additional tax in previous taxation years. For the purpose of this provision, the term “earnings” means profits attributable to such permanent establishments in Canada (including gains from the alienation of property forming part of the business property, referred to in paragraph 2 of Article 13, of such permanent establishments) in accordance with Article 7 in a year and previous years after deducting therefrom:

  • (a) business losses attributable to such permanent establishments (including losses from the alienation of property forming part of the business property of such permanent establishments) in such year and previous years;

  • (b) all taxes chargeable in Canada on such profits, other than the additional tax referred to herein;

  • (c) the profits reinvested in Canada, provided that the amount of such deduction shall be determined in accordance with the existing provisions, of the law of Canada regarding the computation of the allowance in respect of investment in property in Canada, and any subsequent modification of those provisions which shall not affect the general principle hereof; and

  • (d) five hundred thousand Canadian dollars ($500,000), less any amount deducted:

    • (i) by the company, or

    • (ii) by a person related thereto from the same or a similar business as that carried on by the company,

    under this subparagraph (d); for the purposes of this subparagraph (d), a company is related to another company if one company directly or indirectly controls the other, or both companies are directly or indirectly controlled by the same person or persons, or if the two companies deal with each other not at arm’s length.

Article 11
Interest

• 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

• 3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State if it is:

  • (a) interest paid with respect to indebtedness in connection with the sale on credit by a resident of that other State of any equipment, merchandise or services, except where the sale or indebtedness was between related persons;

  • (b) interest paid to the other Contracting State or a political subdivision or a local authority thereof;

  • (c) interest on a loan made, guaranteed or insured or a credit extended, guaranteed or insured by Export Development Canada in the case of Canada or by any similar institution specified and agreed in letters exchanged between the competent authorities of the Contracting States in the case of Belgium.

• 4. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income assimilated to income from money lent by the taxation law of the State in which the income arises; however, the term “interest” does not include for the purpose of this Article penalty charges for late payment, interest referred to in paragraph 4 of Article 8 nor interest dealt with in paragraph 3 of Article 10.

• 5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether the person is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable in the Contracting State in which the interest arises according to the laws of that State.

Article 12
Royalties

• 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.

• 3. Notwithstanding the provisions of paragraph 2,

  • (a) copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other artistic work (but not including royalties in respect of motion picture films nor royalties in respect of works on film or videotape or other means of reproduction for use in connection with television broadcasting); and

  • (b) royalties for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such information provided in connection with a rental or franchise agreement),

  arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State.

• 4. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including payments of any kind in respect of motion picture films and works on film, videotape or other means of reproduction for use in connection with television, any patent, trade mark, design or model, plan, secret formula or process or other intangible property, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

• 5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 6. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether the person is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable in the Contracting State in which the royalties arise, according to the laws of that State.

Article 13
Capital Gains

• 1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

• 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.

• 3. Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.

• 4. Gains derived by a resident of a Contracting State from the alienation of:

  • (a) shares (other than shares listed on an approved stock exchange in the other Contracting State) forming part of a substantial interest in the capital stock of a company which is a resident of either Contracting State, the value of which shares is derived principally from immovable property situated in the other State; or

  • (b) a substantial interest in a partnership, trust or estate, established under the law in either Contracting State, the value of which is derived principally from immovable property situated in the other State,

  may be taxed in that other State. For the purposes of this paragraph, the term “immovable property” includes the shares of a company referred to in subparagraph (a) or an interest in a partnership, trust or estate referred to in subparagraph (b) but does not include any property, other than rental property, in which the business of the company, partnership, trust or estate is carried on.

• 5. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident.

• 6. Where an individual who ceases to be a resident of a Contracting State, and immediately thereafter becomes a resident of the other Contracting State, is treated for the purposes of taxation in the first-mentioned State as having alienated a property and is taxed in that State by reason thereof, the individual may elect to be treated for purposes of taxation in the other State as if the individual had, immediately before becoming a resident of that State, sold and repurchased the property for an amount equal to its fair market value at that time. However, this provision shall not apply to property, which would give rise, if it were alienated immediately before the individual became a resident of that other State, to a gain, which may be taxed in that other State nor to immovable property situated in a third State.

Article 14
Independent Personal Services

• 1. Income derived by an individual who is a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State unless the individual has a fixed base regularly available in the other Contracting State for the purpose of performing the activities. If the individual has or had such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base.

• 2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15
Dependent Personal Services

• 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

• 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

  • (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned; and

  • (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and

  • (c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

• 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State may be taxed in that State.

Article 16
Company Managers

• 1. Director’s fees and similar payments derived by a resident of a Contracting State in that resident’s capacity as a member of the board of directors or a similar organ of a company which is a resident of the other Contracting State, may be taxed in that other State.

  This provision shall also apply to payments derived in respect of the discharge of functions which, under the laws of the Contracting State of which the company is a resident, are regarded as functions of a similar nature as those exercised by a member of a board of directors or a similar organ of a company.

• 2. Remuneration derived by a person referred to in paragraph 1 from a company which is a resident of a Contracting State in respect of the discharge of day-to-day functions of a managerial or technical nature may be taxed in accordance with the provisions of Article 15 as if such remuneration were remuneration derived by an employee in respect of an employment and as if references to the “employer” were references to the company.

Article 17
Artistes and Sports Persons

• 1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, a musician, or as a sports person, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.

• 2. Where income in respect of personal activities exercised by an entertainer or a sports person in that individual’s capacity as such accrues not to that entertainer or sports person personally but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sports person are exercised.

• 3. The provisions of paragraph 2 shall not apply if the entertainer or the sports person establishes that neither the individual nor any person associated with the individual participates directly or indirectly in the profits of the person referred to in that paragraph.

Article 18
Pensions

• 1. Periodic or non-periodic pensions and other similar allowances arising in a Contracting State and paid in consideration of past employment to a resident of the other Contracting State may be taxed in the Contracting State in which they arise. This provision shall also apply to pensions and allowances paid under a public scheme organised by a Contracting State in order to supplement the benefits of its social security legislation.

• 2. Notwithstanding the provisions of paragraph 1, payments under the social security legislation in a Contracting State and war veterans pensions paid by a Contracting State to a resident of the other Contracting State shall be taxable only in the first-mentioned State.

• 3. Any alimony or other maintenance payment arising in a Contracting State and paid to a resident of the other Contracting State who is subject to tax therein in respect thereof, shall be taxable only in that other State.

Article 19
Government Service

(a) Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

(b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the recipient is a resident of that State who:

(i) is a national of that State; or

(ii) did not become a resident of that State solely for the purpose of performing the services.

• 2. The provisions of paragraph 1 shall not apply to salaries, wages and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

Article 20
Students

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of that individual’s education or training receives for the purpose of that individual’s maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.

Article 21
Other Income

• 1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

• 2. However, if such income is derived by a resident of a Contracting State from sources in the other Contracting State, such income may also be taxed in the State in which it arises, and according to the law of that State. Where such income is income from an estate or a trust, other than a trust to which contributions were deductible, the tax so charged shall, provided that the income is taxable in the Contracting State in which the beneficial owner is a resident, not exceed 15 per cent of the gross amount of the income.

IV. TAXATION OF CAPITAL

Article 22
Capital

• 1. Capital represented by immovable property referred to in Article 6, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.

• 2. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other State.

• 3. Capital represented by ships and aircraft operated by an enterprise of a Contracting State in international traffic, or represented by movable property pertaining to the operation of such ships and aircraft, shall be taxable only in that State.

• 4. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

V. METHODS FOR PREVENTION OF DOUBLE TAXATION

Article 23
Elimination of Double Taxation

• 1. In the case of Belgium, double taxation shall be avoided as follows:

  • (a) When a resident of Belgium derives income or owns elements of capital which are taxed in Canada in accordance with the provisions of this Convention, other than those of paragraph 2 of Article 10, of paragraphs 2 and 7 of Article 11, of paragraphs 2 and 7 of Article 12 and of the second sentence of paragraph 2 of Article 21, Belgium shall exempt such income or such elements of capital from tax but may, in calculating the amount of tax on the remaining income or capital of that resident, apply the rate of tax which would have been applicable if such income or elements of capital had not been exempted.

  • (b) Subject to the provisions of Belgian law regarding the deduction from Belgian tax of taxes paid abroad, where a resident of Belgium derives items of his aggregate income for Belgian tax purposes which are dividends taxable in accordance with paragraph 2 of Article 10 and not exempt from Belgian tax according to subparagraph (c) hereinafter, interest taxable in accordance with paragraph 2 or 7 of Article 11, royalties taxable in accordance with paragraph 2 or 7 of Article 12, the Canadian tax levied on that income shall be allowed as a credit against Belgian tax relating to such income.

  • (c) Dividends derived by a company which is a resident of Belgium from a company which is a resident of Canada and which may be taxed in Canada in accordance with paragraph 2 of Article 10, shall be exempt from the corporate income tax in Belgium under the conditions and within the limits provided for in Belgian law.

  • (d) When, in accordance with Belgian law, losses incurred by an enterprise carried on by a resident of Belgium in a permanent establishment situated in Canada, have been effectively deducted from the profits of that enterprise for its taxation in Belgium, the exemption provided for in subparagraph (a) shall not apply in Belgium to the profits of other taxable periods attributable to that establishment to the extent that those profits have also been exempted from tax in Canada by reason of compensation for the said losses.

  • (e) When a resident of Belgium derives income to which the provisions of the second sentence of paragraph 2 of Article 21 apply and which has been taxed in Canada, the amount of Belgian tax proportionately attributable to such income shall not exceed the amount which would be charged according to Belgian law if such income were taxed as earned income derived from sources outside Belgium and subject to foreign tax.

• 2. In the case of Canada, double taxation shall be avoided as follows:

  • (a) Subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions (which shall not affect the general principle hereof) and unless a greater deduction or relief is provided for under the laws of Canada, tax payable in Belgium on profits, income or gains arising in Belgium shall be deducted from any Canadian tax payable in respect of such profits, income or gains.

  • (b) Subject to the existing provisions of the law of Canada regarding the taxation of income from a foreign affiliate and to any subsequent modification of those provisions for the purposes of computing Canadian tax, a company which is a resident of Canada shall be allowed to deduct in computing its taxable income any dividend received by it out of the exempt surplus of a foreign affiliate which is a resident of Belgium.

  • (c) Where in accordance with any provision of the Convention income derived or capital owned by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income or capital, take into account the exempted income or capital.

  • (d) For the purposes of this paragraph, profits, income or gains of a resident of Canada, which may be taxed in Belgium in accordance with the Convention shall be deemed to arise in Belgium.

VI. SPECIAL PROVISIONS

Article 24
Non-discrimination

• 1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to individuals who are not residents of one or both of the Contracting States.

• 2. The taxation on a permanent establishment, which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities. This provision shall not be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

• 3. Except where the provisions of paragraph 1 of Article 9 or of paragraph 7 of Article 12, apply, royalties paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State.

• 4. In this Article, the term “taxation” means the taxes which are the subject of this Convention.

Article 25
Mutual Agreement Procedure

• 1. Where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of this Convention, that person may, irrespective of the remedies provided by the domestic law of those States, present the case in writing to the competent authority of the Contracting State of which that person is a resident, or if the case comes under paragraph 1 of Article 24, to that of the Contracting State of which that person is a national. To be admissible, the said case must be presented within two years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.

• 2. The competent authority referred to in paragraph 1 shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention.

• 3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention.

• 4. The competent authorities of the Contracting States shall agree on administrative measures necessary to carry out the provisions of the Convention and particularly on the proofs to be furnished by residents of either Contracting State in order to benefit in the other State from the exemptions or reductions in tax provided for in the Convention.

• 5. The competent authorities of the Contracting States may communicate directly with each other for the application of the Convention.

• 6. For purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that, notwithstanding that paragraph, any dispute between them as to whether a measure falls within the scope of this Convention may be brought before the Council for Trade in Services, as provided by that paragraph, only with the consent of both Contracting States. Any doubt as to the interpretation of this paragraph shall be resolved under paragraph 3 of this Article or, failing agreement under that procedure, pursuant to any other procedure agreed to by both Contracting States.

Article 26
Exchange of Information

• 1. The competent authorities of the Contracting States shall exchange such information as is relevant for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning all taxes imposed on behalf of the Contracting States insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to taxes. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

• 2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

  • (a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

  • (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

  • (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

Article 27
Miscellaneous Provisions

• 1. Nothing in this Convention shall affect the fiscal privileges of members of a diplomatic mission or consular post under the general rules of international law or under the provisions of special agreements.

• 2. The provisions of the Convention shall not be construed to restrict in any manner any exemption, allowance, credit or other deduction now or hereafter accorded by the laws of a Contracting State in the determination of the tax imposed by that State.

• 3. Nothing in the Convention shall be construed as preventing Canada from imposing a tax on amounts included in the income of a resident of Canada with respect to a trust in which that resident has an interest or with respect to a controlled foreign affiliate, in accordance with section 91 of the Income Tax Act of Canada as it may be amended without changing the general principle hereof.

• 4. The Convention shall not apply to non-resident-owned investment corporations as defined under section 133 of the Income Tax Act of Canada, or under any similar provision enacted by Canada after the signature of the Convention, or to any income derived from such companies by any shareholders thereof.

• 5. The exemption provided under subparagraph (b) of paragraph 3 of Article 12 shall not apply where the enterprise benefiting from the royalties has, in a State which is not a Contracting State, a permanent establishment to which the royalties are attributable and where the royalties are subject, in the State of residence of the enterprise and in the State where the permanent establishment is situated, to a tax the total of which is less than 60 per cent of the tax that would be imposed in the State of residence of the enterprise if the royalties were attributable to the enterprise and not to the permanent establishment. The provisions of this paragraph shall not apply:

  • (a) if the royalties are derived in connection with or incidental to the active conduct of a trade or business carried on in the State which is not a Contracting State; or

  • (b) when Belgium is the State of residence of the enterprise, to royalties taxed by Canada according to section 91 of the Income Tax Act, as it may be amended without changing the general principle hereof.

• 6. Notwithstanding the provisions of paragraphs 2 and 3 of Article 11 and of paragraphs 2 and 3 of Article 12, interest and royalties (other than royalties to which paragraph 5 applies) arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in the first-mentioned State at a rate not exceeding 15 per cent of the gross amount of the interest and 10 per cent of the gross amount of the royalties, where:

  • (a) such interest or royalties are received by a company and one or more persons not resident in that other Contracting State hold directly or indirectly, through one or more companies or otherwise, at least 50 per cent of the capital of such company and, directly or indirectly, exercise the management of, or control such company; and

  • (b) such interest or royalties are not subject to tax in the other State under the ordinary rules of its tax law.

VII. FINAL PROVISIONS

Article 28
Entry Into Force

• 1. This Convention shall be ratified and the instruments of ratifi-cation shall be exchanged at Brussels as soon as possible.

• 2. The Convention shall enter into force on the fifteenth day after the date of the exchange of the instruments of ratification and its provisions shall have effect:

  • (a) in Belgium:

    • (i) with respect to taxes due at source on income credited or payable on or after January 1 of the year in which the instruments of ratification have been exchanged;

    • (ii) with respect to other taxes for taxable periods ending on or after December 31 of the year in which the instruments of ratification have been exchanged;

  • (b) in Canada:

    • (i) with respect to taxes withheld at the source on amounts paid or credited to non-residents on or after January 1 of the year in which the instruments of ratification have been exchanged;

    • (ii) with respect to other taxes for taxation years beginning on or after January 1 of the year in which the instruments of ratification have been exchanged.

• 3. The provisions of the Convention between Canada and Belgium for the avoidance of double taxation and the settlement of other matters with respect to taxes on income signed at Ottawa, on May 29, 1975, shall cease to be effective in relation to any Canadian or Belgian tax for which this Convention has effect in accordance with paragraph 2.

Article 29
Termination

This Convention shall remain in force until terminated by a Contracting State but either Contracting State may terminate the Convention, through diplomatic channels, by giving to the other Contracting State, written notice of termination not later than June 30 of any calendar year from the fifth year following that in which the instruments of ratification have been exchanged. In the event of termination before July 1 of such year, the Convention shall cease to have effect:

• (a) in Belgium:

  • (i) with respect to taxes due at source on income credited or payable after December 31 of the year in which the notice of termination is given;

  • (ii) with respect to other taxes for taxable periods ending on or after December 31 of the year next following the year in which the notice of termination is given;

• (b) in Canada:

  • (i) with respect to taxes withheld at the source on amounts paid or credited to non-residents after December 31 of the year in which the notice of termination is given;

  • (ii) with respect to other taxes for taxation years beginning on or after January 1 of the year next following the year in which the notice of termination is given.

IN WITNESS WHEREOF the undersigned, being duly authorized thereto by their respective Governments, have signed this Convention.

DONE in duplicate at Ottawa, this 23rd day of May, 2002, in the English, French and Dutch languages, the three texts being equally authentic.

PROTOCOL

At the moment of signing the Convention between Canada and Belgium for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, the undersigned have agreed that the following provisions shall form an integral part of the Convention.

• 1. With reference to paragraph 1 of Article 4.

  It is understood that:

  • (a) for purposes of the application of the Convention to:

    • (i) income taxes, the term “liable to tax” refers to liability to taxes on income and not to taxes on capital;

    • (ii) capital taxes, the term “liable to tax” refers to liability to taxes on capital and not to taxes on income;

  • (b) the term “resident of a Contracting State” also includes:

    • (i) a company or other organization constituted and operated exclusively to administer or provide benefits under one or more funds or plans established to provide pension, retirement or other employee benefits that is generally exempt from tax in a Contracting State and that is a resident of that State according to the laws of that State;

    • (ii) a company or other organization that is operated exclusively for religious, charitable, scientific, educational, or public purposes and that is generally exempt from tax in a Contracting State and that is a resident of that State according to the laws of that State.

• 2. With reference to paragraph 6 of Article 10.

  The provisions of this paragraph shall also apply with respect to earnings derived from the alienation of immovable property in Canada by a company carrying on a trade in immovable property, whether or not it has a permanent establishment in Canada, but only insofar as these earnings may be taxed in Canada under the provisions of Article 6 or paragraph 1 of Article 13.

• 3. With reference to subparagraph (a) of paragraph 3 of Article 11.

  It is understood that the exemption provided for under that subparagraph shall not apply to interest paid with respect to indebtedness that was created or acquired essentially with a view to take advantage of that provision and not for bona fide commercial purposes.

• 4. With reference to paragraph 4 of Article 12.

  It is understood that payments constituting consideration for technical assistance or technical services shall not be considered to be payments for information concerning industrial, commercial or scientific experience, but shall be taxable in accordance with the provisions of Article 7 or Article 14, as the case may be.

• 5. With reference to paragraph 2 of Article 16.

  The provisions of this paragraph shall also apply, in the case of Belgium, to remuneration received by a resident of Canada in respect of that resident’s personal activity as a partner of a company, other than a company with share capital, which is a resident of Belgium.

• 6. With reference to paragraph 6 of Article 27.

  The provisions of paragraph 6 of Article 27 shall not apply if,

  • (a) the participation in the capital of the company receiving the interest or the royalties was made for bona fide commercial or financial reasons, and

  • (b) at the end of the taxation year or the taxable period concerned, the paid-up capital and the taxed retained earnings of the company receiving the interest or the royalties do not exceed 33 per cent of its debt.

IN WITNESS WHEREOF the undersigned, being duly authorized thereto by their respective Governments, have signed this Protocol.

DONE in duplicate at Ottawa, this 23rd day of May, 2002, in the English, French and Dutch languages, the three texts being equally authentic.

The Government of Canada and the Government of the Italian Republic, desiring to conclude a Convention for the avoidance of double taxation with respect to taxes on income and the prevention of fiscal evasion, have agreed as follows:

Article 1
Persons Covered

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2
Taxes Covered

• 1. This Convention shall apply to taxes on income imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.

• 2. There shall be regarded as taxes on income all taxes imposed on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation.

• 3. The existing taxes to which the Convention shall apply are, in particular,

  • (a) in the case of Canada: the taxes on income imposed by the Government of Canada under the Income Tax Act, (hereinafter referred to as “Canadian tax”);

  • (b) in the case of Italy:

    • (i) the individual income tax (imposta sul reddito delle persone fisiche);

    • (ii) the corporate income tax (imposta sul reddito delle persone giuridiche);

    • (iii) the regional tax on productive activities (imposta regionale sulle attività produttive);

    even when deducted at source; (hereinafter referred to as “Italian tax”).

• 4. The Convention shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of this Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes which have been made in their respective taxation laws.

• 5. The Convention shall not apply to taxes (even when deducted at source) payable on lottery winnings, on premiums other than those on securities, and on winnings from games of chance or skill, competitions and betting.

Article 3
General Definitions

• 1. For the purposes of this Convention, unless the context otherwise requires,

  • (a) the terms “a Contracting State” and “the other Contracting State” mean, as the context requires, Canada or Italy;

  • (b) the term “Canada”, used in a geographical sense, means the territory of Canada, including

    • (i) any area beyond the territorial sea of Canada which, in accordance with international law and the laws of Canada, is an area within which Canada may exercise rights with respect to the seabed and subsoil and their natural resources, and

    • (ii) the sea and airspace above every area referred to in clause (i) in respect of any activity carried on in connection with the exploration for or the exploitation of the natural resources referred to therein;

  • (c) the term “Italy” means the Italian Republic and includes any area beyond the territorial waters of Italy which is designated as an area within which Italy, in compliance with its legislation and in conformity with the International Law, exercises sovereign rights in respect of the exploration and exploitation of the natural resources of the seabed, the subsoil and the superjacent waters;

  • (d) the term “person” includes an individual, a company and any other body of persons;

  • (e) the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes;

  • (f) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

  • (g) the term “competent authority” means

    • (i) in the case of Canada, the Minister of National Revenue or the Minister’s authorized representative, and

    • (ii) in the case of Italy, the Ministry of Finance;

  • (h) the term “national” means

    • (i) any individual possessing the nationality of a Contracting State, and

    • (ii) any legal person, partnership and association deriving its status as such from the laws in force in a Contracting State;

  • (i) the term “international traffic” means any voyage of a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State to transport passengers or property except where the principal purpose of the voyage is to transport passengers or property between places within the other Contracting State.

• 2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has at that time under the law of that State for the purposes of the taxes to which the Convention applies.

Article 4
Resident

• 1. For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to taxation therein by reason of the person’s domicile, residence, place of management or any other criterion of a similar nature but does not include any person who is liable to tax in that State in respect only of income from sources in that State.

• 2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then the individual’s status shall be determined as follows:

  • (a) the individual shall be deemed to be a resident only of the State in which the individual has a permanent home available and if the individual has a permanent home available in both States, the individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

  • (b) if the State in which the individual’s centre of vital interests cannot be determined, or if there is not a permanent home available to the individual in either State, the individual shall be deemed to be a resident only of the State in which the individual has an habitual abode;

  • (c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

  • (d) if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

• 3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to settle the question by mutual agreement having regard in particular to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to claim any relief or exemption from tax provided by the Convention.

Article 5
Permanent Establishment

• 1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

• 2. The term “permanent establishment” shall include especially

  • (a) a place of management;

  • (b) a branch;

  • (c) an office;

  • (d) a factory;

  • (e) a workshop;

  • (f) a mine, an oil or gas well, a quarry or any other place of exploration for or exploitation of natural resources;

  • (g) a building site or construction or installation project only if it lasts for more than 12 months.

• 3. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include

  • (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

  • (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

  • (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

  • (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise;

  • (e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research, or for similar activities which have a preparatory or auxiliary character, for the enterprise.

• 4. A person acting in a Contracting State on behalf of an enterprise of the other Contracting State — other than an agent of an independent status to whom paragraph 5 applies — shall be deemed to be a permanent establishment in the first-mentioned State if the person has, and habitually exercises in that State, an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to the purchase of goods or merchandise for the enterprise.

• 5. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

• 6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

Article 6
Income from Immovable Property

• 1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

• 2. The term “immovable property” shall have the meaning which it has for the purposes of the relevant tax law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry as well as rights to which the provisions of general law respecting landed property apply. Usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources shall also be deemed to be “immovable property”. Ships and aircraft shall not be regarded as immovable property.

• 3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

• 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7
Business Profits

• 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

• 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

• 3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses, whether incurred in the State in which the permanent establishment is situated or elsewhere.

• 4. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.

• 5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

• 6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• 7. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8
Shipping and Air Transport

• 1. Profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.

• 2. If the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship is a resident.

• 3. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

Article 9
Associated Enterprises

• 1. Where

  • (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

  • (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

  and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

• 2. Where a Contracting State includes in the profits of an enterprise of that State — and taxes accordingly — profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits that would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those that would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of tax charged therein on those profits. Any such adjustment shall be made only in accordance with the mutual agreement procedure in Article 24.

• 3. A Contracting State shall not change the profits of an enterprise in the circumstances referred to in paragraph 1 after the expiry of the time limits provided in its national laws and, in any case, after six years from the end of the year in which the profits that would be subject to such change would, but for the conditions referred to in paragraph 1, have accrued to that enterprise.

• 4. The provisions of paragraphs 2 and 3 shall not apply in the case of fraud or wilful offence.

Article 10
Dividends

• 1. Dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

  • (a) except in the case of dividends paid by a non-resident-owned investment corporation that is a resident of Canada, 5 per cent of the gross amount of the dividends if the beneficial owner is a company that controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; and

  • (b) 15 per cent of the gross amount of the dividends, in all other cases.

  The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations.

  The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

• 3. The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other rights which is subjected to the same taxation treatment as income from shares by the taxation laws of the State of which the company making the distribution is a resident.

• 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the dividends may be taxed in that other Contracting State in accordance with its own internal laws.

• 5. Where a company that is a resident of a Contracting State, derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

• 6. Nothing in this Convention shall be construed as preventing Canada from imposing on the earnings attributable to the alienation of immovable property situated in Canada by a company carrying on a trade in immovable property or on the earnings of a company attributable to a permanent establishment in Canada, a tax in addition to the tax that would be chargeable on the earnings of a company that is a national of Canada, except that any additional tax so imposed shall not exceed 5 per cent of the amount of such earnings that have not been subjected to such additional tax in previous taxation years. For the purpose of this provision, the term “earnings” means the earnings attributable to the alienation of such immovable property situated in Canada as may be taxed by Canada under the provisions of Article 6 or of paragraph 1 of Article 13, and the profits, including any gains, attributable to a permanent establishment in Canada in a year and previous years after deducting therefrom all taxes, other than the additional tax referred to herein, imposed on such profits in Canada.

Article 11
Interest

• 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation.

• 3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State if:

  • (a) the interest is paid to a beneficial owner who is a resident of the other Contracting State and if the payer of the interest is the first-mentioned Contracting State or a political or administrative subdivision or local authority thereof; or

  • (b) the interest is paid to the other Contracting State or a political or administrative subdivision or local authority thereof or to an institution or organization (including financial institutions) wholly owned by that Contracting State or subdivision or authority thereof; or

  • (c) the interest is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by any institution specified and agreed in letters exchanged between the competent authorities of the Contracting States.

• 4. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income which is subjected to the same taxation treatment as income from money lent by the laws of the State in which the income arises. However, the term “interest” does not include income dealt with in Article 10.

• 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the interest may be taxed in that other Contracting State in accordance with its own internal laws.

• 6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount that would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 12
Royalties

• 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State the tax so charged shall not exceed:

  • (a) 5 per cent of the gross amount of the royalties in respect of payments for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalties provided in connection with a rental or franchise agreement);

  • (b) 10 per cent of the gross amount of the royalties in all other cases.

  The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations.

• 3. Notwithstanding the provisions of paragraph 2, copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other artistic work (but not including royalties in respect of computer software, royalties in respect of motion picture films nor royalties in respect of works on film or videotape or other means of reproduction for use in connection with television broadcasting) arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State.

• 4. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including computer software, motion picture films and royalties in respect of works on film or videotape or other means of reproduction for use in connection with television broadcasting, patent, trade mark, design or model, plan, secret formula or process or other intangible property, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

• 5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the royalties may be taxed in that other Contracting State in accordance with its own internal laws.

• 6. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by that permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount that would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Article 13
Capital Gains

• 1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in paragraph 2 of Article 6 and situated in the other Contracting State may be taxed in that other State.

• 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment that an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base may be taxed in that other State.

• 3. Gains from the alienation of ships or aircraft operated in international traffic or from movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.

• 4. Gains derived by a resident of a Contracting State from the alienation of

  • (a) shares (other than shares listed on an approved stock exchange in a Contracting State) forming part of a substantial interest in the capital stock of a company the value of which shares is derived principally from immovable property situated in the other State, or

  • (b) a substantial interest in a partnership, trust or estate, the value of which is derived principally from immovable property situated in that other State,

  may be taxed in that other State. For the purposes of this paragraph, the term “immovable property” does not include any property, other than rental property, in which the business of the company, partnership, trust or estate is carried on.

• 5. Where a resident of a Contracting State alienates property in the course of a corporate or other organization, reorganization, amalgamation, division or similar transaction and profit, gain or income with respect to such alienation is not recognized for the purpose of taxation in that State, if requested to do so by the person who acquires the property, the competent authority of the other Contracting State may agree, subject to terms and conditions satisfactory to such competent authority, to defer the recognition of the profit, gain or income with respect to such property for the purpose of taxation in that other State until such time and in such manner as may be stipulated in the agreement between the competent authority and the person acquiring the property. The competent authority of a Contracting State that has entered into such an agreement shall inform the competent authority of the other Contracting State of the terms of such agreement.

• 6. Gains from the alienation of any property, other than that mentioned in paragraphs 1, 2, 3 and 4 shall be taxable only in the Contracting State of which the alienator is a resident.

• 7. Where an individual who is a resident of a Contracting State and immediately thereafter becomes a resident of the other Contracting State, is treated by the first-mentioned Contracting State as having alienated property, and is taxed by that State in respect of gains accrued from such property as of the date of change of residence, the individual may elect in the other Contracting State in the individual’s return of income for the year of alienation to be liable to tax as if the individual has sold and repurchased the property for an amount equal to its fair market value at the date of change of residence.

Article 14
Independent Personal Services

• 1. Income derived by an individual who is a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State unless the individual has a fixed base regularly available in the other Contracting State for the purpose of performing the activities. If the individual has or had such a fixed base the income may be taxed in the other State but only so much of it as is attributable to that fixed base.

• 2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15
Dependent Personal Services

• 1. Subject to the provisions of Articles 16, 17 and 19, salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

• 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if

  • (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the calendar year concerned, and

  • (b) the remuneration is paid by, or on behalf of, a person who is not a resident of the other State, and

  • (c) the remuneration is not borne by a permanent establishment or a fixed base which the person has in the other State.

• 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in the State in which the place of effective management of the enterprise is situated unless the remuneration is derived by a resident of the other Contracting State.

Article 16
Directors’ Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in that resident’s capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17
Artistes and Sportspersons

• 1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.

• 2. Where income in respect of personal activities exercised by an entertainer or a sportsperson in that individual’s capacity as such accrues not to the entertainer or sportsperson personally but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

• 3. The provisions of paragraph 2 shall not apply if it is established that neither the entertainer or the sportsperson nor persons related thereto, participate directly or indirectly in the profits of the person referred to in that paragraph.

Article 18
Pensions

• 1. Pensions arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2. However, such pensions may also be taxed in the Contracting State in which they arise and according to the laws of that State but, in the case of periodic pension payments, the tax so charged shall not exceed the lesser of

  • (a) 15 per cent of the gross amount of such periodic pension payments paid to the recipient in the calendar year concerned that exceeds twelve thousand Canadian dollars or its equivalent in Italian currency, and

  • (b) the rate determined by reference to the amount of tax that the recipient of the payment would otherwise be required to pay for the year on the total amount of the periodic pension payments received by the resident in the year, if the recipient were resident in the Contracting State in which the payment arises.

• 3. Notwithstanding any provision of this Convention:

  • (a) pensions paid by, or out of funds created by, the Italian State or a political or administrative subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in Italy;

  • (b) benefits under the social security legislation in a Contracting State paid in a calendar year to an individual who is a resident of the other Contracting State shall be taxable only in the State in which they arise and according to the laws of that State but the tax so charged shall not exceed the amount that the recipient would otherwise be required to pay in that year if the recipient were a resident of that first-mentioned State;

  • (c) non-periodic pension payments, severance or similar lump-sum payments, and payments made as a consequence of the termination of any office or employment arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in the State in which they arise and according to the laws of that State;

  • (d) war veterans pensions and allowances arising in a Contracting State and received by a resident of the other Contracting State shall not be taxable in that other State as long as they would not be taxable if received by a resident of the Contracting State in which they arise.

• 4. For the purposes of paragraphs 1 and 2, where an individual who is a resident of a Contracting State in a particular taxable period first receives a payment under a pension fund in the other Contracting State that can reasonably be attributed to a pension to which the individual was entitled for any period preceding that particular period, the individual may in each Contracting State elect to treat for the purposes of taxation in each such State such portion as the individual may elect of the payment relating to all preceding periods as having been paid to and received by the individual on the last day of the taxable period immediately preceding the particular period and not to have been so paid to and received by the individual in that particular period.

Article 19
Government Service

(a) Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a political or administrative subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

(b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who

(i) is a national of that State; or

(ii) did not become a resident of that State solely for the purpose of rendering the services.

• 2. Notwithstanding the provisions of subparagraph (b) of paragraph 1, salaries, wages and other similar remuneration referred to therein paid by a Contracting State or a political or administrative subdivision or a local authority thereof to an individual who is a national of the other Contracting State being also a national of the first-mentioned State, or is a national of the first-mentioned State, shall be taxable only in that first-mentioned State if such salaries, wages and other similar remuneration are taxed under the ordinary rules of taxation of such income in that first-mentioned State.

• 3. The provisions of Articles 15, 16, 17 and 18 shall apply to salaries, wages and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political or administrative subdivision or a local authority thereof.

Article 20
Students

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of that individual’s education or professional training receives for the purpose of that individual’s maintenance, education or professional training shall not be taxed in that State, if such payments arise from sources outside that State.

Article 21
Other Income

• 1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

• 2. The provisions of paragraph 1 shall not apply to income other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property, in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case, the income may be taxed in that other Contracting State in accordance with its own internal laws.

• 3. Notwithstanding the provisions of paragraph 1, if such income is derived by a resident of a Contracting State from sources in the other Contracting State, such income may also be taxed in the State in which it arises and according to the law of that State. Where such income is income from an estate or a trust, other than a trust to which contributions were deductible, the tax so charged shall, if the income is taxable in the Contracting State in which the beneficial owner is a resident, not exceed 15 per cent of the gross amount of the income.

Article 22
Elimination of Double Taxation

• 1. In the case of Canada, double taxation shall be avoided as follows:

  • (a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions which shall not affect the general principle hereof and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Italy on profits, income or gains arising in Italy shall be deducted from any Canadian tax payable in respect of such profits, income or gains;

  • (b) where, in accordance with any provision of the Convention, income derived by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income, take into account the exempted income.

• 2. In the case of Italy, double taxation shall be avoided as follows:

  Where a resident of Italy derives items of income which may be taxed in Canada, Italy may, in computing its own income taxes referred to in Article 2 of this Convention, include such items of income in the tax base unless otherwise expressly provided by this Convention.

  In such case, Italy shall allow as a deduction from the tax so computed the income taxes paid in Canada but the deduction shall not exceed the proportion Italian tax attributable to such items of income that such items bear to the entire income.

  No deduction will, however, be allowed in cases where, at the request of the recipient and in accordance with Italian laws, the item of income is subjected to tax in Italy by way of a final withholding.

• 3. For the purposes of this Article, profits, income or gains of a resident of a Contracting State which may be taxed in the other Contracting Sate in accordance with this Convention shall be deemed to arise from sources in that other State.

Article 23
Non-discrimination

• 1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.

  In particular, the nationals of a Contracting State who are subject to tax in the other Contracting State shall be granted the same exemptions, basic abatements, deductions and reductions for taxation purposes on account of family responsibilities which are granted to nationals of the other Contracting State in the same circumstances.

• 2. The taxation on a permanent establishment that an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities.

  This provision shall not be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

• 3. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome that the taxation and connected requirements to which other similar enterprises of the first-mentioned State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of a third State, are or may be subjected.

• 4. In this Article, the term “taxation” means taxes which are the subject of this Convention.

Article 24
Mutual Agreement Procedure

• 1. Where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of this Convention, that person may, irrespective of the remedies provided by the domestic laws of those States, present that person’s case to the competent authority of the Contracting State of which that person is a resident or, if that person’s case comes under paragraph 1 of Article 23, to that of the Contracting State of which that person is a national. The case must be presented within two years from the first notification of the action resulting in taxation not in accordance with the Convention.

• 2. That competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.

• 3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.

• 4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. When it seems advisable in order to reach agreement to have an oral exchange of opinions, such exchange may take place through a Commission consisting of representatives of the competent authorities of the Contracting States.

• 5. If any difficulty or doubt arising as to the interpretation or application of the Convention cannot be resolved by the competent authorities pursuant to the preceding paragraphs of this Article, the case may be submitted for arbitration if both competent authorities and the taxpayer agree and the taxpayer agrees in writing to be bound by the decision of the arbitration board. The decision of the arbitration board in a particular case shall be binding on both States with respect to that case. The procedure shall be established in an exchange of notes between the Contracting States.

Article 25
Exchange of Information

• 1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by this Convention insofar as the taxation thereunder is not contrary to this Convention and for the prevention of fiscal evasion. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use the information only for such purposes. These persons or authorities may disclose the information in public court proceedings or in judicial decisions.

• 2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation

  • (a) to carry out administrative measures at variance with the laws or the administrative practice of that or of the other Contracting State;

  • (b) to supply information that is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; or

  • (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

Article 26
Diplomatic And Consular Officials

Nothing in this Convention shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.

Article 27
Request for Refunds

• 1. Taxes withheld at source in Italy shall, at the request of the taxpayer, be refunded to the extent that the right to levy the taxes is limited by the provisions of this Convention. Such request shall be submitted within the time limits provided for by the Italian laws and must contain an official certificate issued by the competent authority of Canada stating that the conditions for claiming the exemptions or reductions provided for in this Convention have been fulfilled.

• 2. The competent authorities of the Contracting States may, by mutual agreement and in accordance with the provisions of Article 24, agree on other procedures for the application of the limitations provided for by this Convention.

Article 28
Entry Into Force

• 1. This Convention shall be ratified and the instruments of ratification shall be exchanged as soon as possible.

• 2. The Convention shall enter into force upon the exchange of instruments of ratification and its provisions shall have effect:

  • (a) in Canada

    • (i) in respect of tax withheld at the source on amounts paid or credited to non-residents, on or after the first day of January in the calendar year in which the exchange of instruments of ratification takes place; and

    • (ii) in respect of other Canadian tax, for taxation years beginning on or after the first day of January in the calendar year in which the exchange of instruments of ratification takes place;

  • (b) in Italy in respect of income derived during the taxable periods beginning on or after the first day of January in the calendar year in which the exchange of instruments of ratification takes place.

• 3. Notwithstanding the provisions of paragraph 2, the provisions of paragraph 2 of Article 19 shall have effect on or after the first day of January of the year that is three years before the year of the exchange of the instruments of ratification.

• 4. The provisions of the Convention between Canada and Italy for the avoidance of double taxation with respect to taxes on income and for the prevention of fiscal evasion signed at Toronto on November 17, 1977, and as amended by the Protocol signed at Ottawa on March 20, 1989, shall cease to have effect with respect to taxes to which this Convention applies in accordance with the provisions of paragraph 2.

• 5. Notwithstanding the provisions of paragraph 4, where any greater relief from tax would have been afforded by the provisions of the 1977 Convention, as amended by the 1989 Protocol, any such provision as aforesaid shall continue to have effect:

  • (a) in Canada

    • (i) in respect of tax withheld at the source on amounts paid or credited to non-residents, on or before the last day of the calendar year next following that in which the Convention enters into force; and

    • (ii) in respect of other Canadian tax, for taxation years ending on or before the last day of the calendar year next following that in which the Convention enters into force;

  • (b) in Italy in respect of income derived during the taxable periods ending on or before the last day of the calendar year next following that in which the Convention enters into force.

Article 29
Termination

This Convention shall continue in effect indefinitely but either Contracting State may, on or before June 30 in any calendar year after the expiration of the fifth year from that of its ratification, give to the other Contracting State a notice of termination in writing and through diplomatic channels. In such event, the Convention shall cease to have effect:

• (a) in Canada

  • (i) in respect of tax withheld at the source on amounts paid or credited to non-residents on or after the first day of January in the calendar year following that in which the notice is given; and

  • (ii) in respect of other Canadian tax for taxation years beginning on or after the first day of January in the calendar year following that in which the notice is given

• (b) in Italy in respect of income derived during the taxable periods beginning on or after the first day of January in the calendar year following that in which the notice is given.

IN WITNESS THEREOF the undersigned, being duly authorized by their respective Governments, have signed this Convention.

DONE at Ottawa on the third day of June 2002, in two originals, each in the English, French and Italian languages, all texts being equally authentic.

PROTOCOL OF UNDERSTANDING

Protocol of understanding to the Convention between the Government of Canada and the Government of the Italian Republic for the avoidance of double taxation with respect to taxes on income and the prevention of fiscal evasion.

At the moment of signing the Convention this day concluded between the Government of Canada and the Government of the Italian Republic for the avoidance of double taxation with respect to taxes on income and the prevention of fiscal evasion, the undersigned plenipotentiaries have agreed upon the following additional provisions which shall be an integral part of the Convention.

It is understood that

• (a) With reference to subparagraph (d) of paragraph 1 of Article 3, the term “person” includes, in the case of Canada, a partnership, an estate and a trust.

• (b) With reference to Article 4, the term “resident of a Contracting State” also includes the Government of that State or a political or administrative subdivi-sion or local authority thereof or any agency or instrumentality of any such government, subdivision or authority.

• (c) With reference to paragraph 3 of Article 4, the compromise solution adopted reflects the common desire of both Contracting States to prevent fiscal evasion.

• (d) With reference to Articles 5 and 8, ferry-boats, deep-sea ferry boats or other vessels devoted principally to the transportation of passengers or goods exclusively between places in a Contracting State shall, when so operated, not be considered to be operated in international traffic; it is further agreed that the landing site or sites situated in the Contracting State and used regularly in such operation by such boats or vessels shall constitute a permanent establishment in that State of the enterprise operating such boats or vessels.

• (e) With reference to paragraph 1 of Article 7, where an enterprise of a Contracting State which has carried on business in the other Contracting State through a permanent establishment situated therein, receives, after it has ceased to carry on business as aforesaid, profits attributable to that permanent establishment, such profits may be taxed in that other State in accordance with the principles laid down in Article 7.

• (f) With reference to paragraph 3 of Article 7, the term “expenses which are incurred for the purposes of the permanent establishment” means those deductible expenses directly relating to the business of the permanent establishment.

• (g) For the purposes of Article 8,

  • (a) the term “profits” includes

    • (i) gross receipts and revenues derived directly from the operation of ships or aircraft in international traffic, and

    • (ii) interest on sums generated directly from the operation of ships or aircraft in international traffic if that interest is incidental to the operation; and

  • (b) the term “operation of ships or aircraft in international traffic” by an enterprise, includes

    • (i) the charter or rental of ships or aircraft,

    • (ii) the rental of containers and related equipment, and

    • (iii) the alienation of ships, aircraft, containers and related equipment

    by that enterprise if that charter, rental or alienation is incidental to the operation by that enterprise of ships or aircraft in international traffic.

• (h) The provisions of paragraphs 1 and 2 of Article 13 shall also apply to profits from the alienation of property referred to therein.

• (i) With reference to Article 13, the inclusion of the provisions contained in paragraph 4 of the said Article arises from extensive possibilities of abuses in connection with investment in immovable property in a Contracting State by non-residents and takes into account the fact that one of the Contracting States has ascertain the existence of actual cases of fiscal evasion in this area.

• (j) For the purposes of subparagraph (b) of paragraph 3 of Article 18, the term “social security” means:

  • (a) in the case of Canada, any pension or benefit paid under the Old Age Security Act of Canada;

  • (b) in the case of Italy, payments received out of funds for which no direct contributions were made by the recipient and, in particular, to such portion of any pension or benefit paid under the social security laws of Italy as is certified by the competent authority of Italy as the amount necessary to increase such pension or benefit to the minimum amount for the category of pension payable to that individual under those laws.

• (k) The Convention shall not apply to international organizations, to organs or officials thereof and to persons who are members of a diplomatic mission, consular post or permanent mission of a third State or group of States, being present in a Contracting State and who are not liable in either Contracting State to the same obligations in relation to tax on their total income as are residents thereof.

• (l) Nothing in the Convention shall be construed to restrict in any manner any tax allowance now or hereafter accorded by the domestic law of a Contracting State or by any other agreement entered into by a Contracting State.

• (m) Nothing in the Convention shall be construed as preventing a Contracting State from imposing a tax on amounts included in the income of a resident of that State with respect to a partnership, trust or controlled foreign affiliate, in which that resident has an interest.

• (n) The Convention shall not apply to any company, trust or partnership that is a resident of a Contracting State and is beneficially owned or controlled, directly or indirectly, by one or more persons who are not residents of that State, if the amount of the tax imposed on the income of the company, trust or partnership by that State is substantially lower than the amount that would be imposed by that State if all of the shares of the capital stock of the company or all of the interests in the trust or partnership, as the case may be, were beneficially owned by one or more individuals who were residents of that State.

• (o) For the purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that, notwithstanding that paragraph, any dispute between them as to whether a measure falls within the scope of this Convention may be brought before the Council for Trade in Services, as provided by that paragraph, only with the consent of both Contracting States. Any doubt as to the interpretation of this paragraph shall be resolved under paragraph 3 of Article 24 of the Convention or, failing agreement under that procedure, pursuant to any other procedure agreed to by both Contracting States.

• (p) For the purposes of the Convention, where an individual who is a participant in a pension fund that is established and recognized under the legislation of a Contracting State performs personal services in the other Contracting State:

  • (a) contributions paid by or on behalf of the individual to the fund during the period that the individual performs such services in the other State shall, during a period not exceeding in the aggregate 60 months, be deductible in computing the individual’s taxable income in that State. Any benefits accrued under the fund or payments made to the fund by or on behalf of the individual’s employer during that period shall not be treated as part of the employee’s taxable income and shall be allowed as a deduction in computing the profits of the individual’s employer in that other State.

  • (b) The provisions of this paragraph shall apply only if:

    • (i) contributions by or on behalf of the individual to the fund (or to another similar fund for which this fund was substituted) were made before the individual arrived in the other State; and

    • (ii) the competent authority of the other State has agreed that the pension fund generally corresponds to a pension fund recognized for tax purposes by that State.

  The benefits granted under this paragraph shall not exceed the benefits that would be allowed by the other State to its residents for contributions to, or benefits otherwise accrued under a pension fund recognized for tax purposes by that State.

IN WITNESS THEREOF the undersigned, being duly authorized by their respective Governments, have signed this Protocol of Understanding.

DONE at Ottawa on the third day of June 2002, in two originals, each in the English, French and Italian languages, all texts being equally authentic.