VZCZCXRO5119
PP RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #2278 3522148
ZNR UUUUU ZZH
P 182148Z DEC 07 ZDK
FM AMEMBASSY OTTAWA
TO RUEATRS/DEPT OF TREASURY WASH DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 7044
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS OTTAWA 002278 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS WHA/CAN, EEB/IFD, AND L/EEB 
TREASURY FOR ALICE FAIBISHENKO, JOHN HARRINGTON, AND DAVID 
SOTOS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD CA US
SUBJECT: CANADA COMPLETES WORK ON BILATERAL TAX TREATY 
PROTOCOL 
 
 
¶1.  ON DECEMBER 14, FINANCE MINISTER FLAHERTY ANNOUNCED THAT, 
AS A RESULT OF BILL S-2 RECEIVING ROYAL ASSENT, THE CANADIAN 
GOVERNMENT HAS NOW COMPLETED THE STEPS REQUIRED IN CANADA TO 
GIVE EFFECT TO THE FIFTH PROTOCOL TO THE CANADA-UNITED STATES 
INCOME TAX CONVENTION.  THE PROTOCOL WILL COME INTO EFFECT 
ONCE IT HAS BEEN RATIFIED BY THE UNITED STATES AND THE TWO 
COUNTRIES HAVE FORMALLY NOTIFIED EACH OTHER THAT THEIR 
PROCEDURES ARE COMPLETE. 
 
¶2.  "MODERNIZING THIS LONG-STANDING TREATY WILL ENCOURAGE 
FURTHER TRADE AND INVESTMENT IN CANADA AND THE UNITED STATES 
AND HELP US TO BETTER COMPETE IN THE GLOBAL ECONOMY," 
MINISTER FLAHERTY TOLD THE PRESS.  "I AM HOPEFUL THAT THE 
U.S. WILL SOON RATIFY THE PROTOCOL SO THAT INDIVIDUALS AND 
BUSINESSES ON BOTH SIDES OF THE BORDER, INCLUDING 
MANUFACTURERS, CAN REALIZE THAT SIGNIFICANT BENEFITS OF THE 
UPDATED TREATY."  HE ADDED THAT "IN THIS HIGHLY COMPETITIVE 
GLOBAL ECONOMY, WE NEED TO CONTINUALLY EXPLORE WAYS TO GROW, 
EXPAND, AND COMPETE.  FURTHER IMPROVING AND REFINING OUR 
RELATIONSHIP WITH THE UNITED STATES, OUR LARGEST TRADING 
PARTNER, IS ESSENTIAL.  THE FIFTH PROTOCOL TO THE CANADA-U.S. 
TAX TREATY IS ABOUT LOOKING AHEAD AND BEING INNOVATIVE. 
 
¶3.  THE AGREEMENT TO MODIFY THE 1980 INCOME TAX CONVENTION 
WAS SIGNED ON SEPTEMBER 21 BY MINISTER FLAHERTY AND TREASURY 
SECRETARY PAULSON.  ACCORDING TO THE FINANCE CANADA PRESS 
 
SIPDIS 
RELEASE, KEY MEASURES OF THE FIFTH PROTOCOL INCLUDE: 
 
-- ELIMINATING WITHHOLDING TAXES ON CROSS-BORDER INTEREST 
PAYMENTS; 
-- EXTENDING TREATY BENEFITS TO LIMITED LIABILITY COMPANIES; 
-- ALLOWING TAXPAYERS TO REQUIRE THAT CERTAIN KEY DOUBLE 
TAXATION ISSUES, SUCH AS TRANSFER PRICING, BE SETTLED THROUGH 
ARBITRATION; 
-- ENSURING THAT THERE IS NO DOUBLE TAXATION ON EMIGRANTS' 
GAINS; 
-- GIVING MUTUAL TAX RECOGNITION OF PENSION CONTRIBUTIONS; AND 
-- CLARIFYING HOW STOCK OPTIONS ARE TAXED. 
 
¶4.  THE FULL TEXT OF THE PROTOCOL, TWO DIPLOMATIC NOTES 
SETTING OUT MORE TECHNICAL ASPECTS OF THE AGREEMENT AND A 
BACKGROUNDER PREPARED BY FINANCE CANADA CAN BE VIEWED ON THE 
FINANCE CANADA WEBSITE (WWW.FIN.GC.CA). 
 
Visit Canada,s Economy and Environment Forum at 
http://www.intelink.gov/communities/state/can ada 
 
WILKINS