by Edward C. Kelleher
Investment banks, broker/dealers and other customers seeking tax relief for themselves and their clients in Canada via DTCC’s TaxReliefSM service will need to begin keeping new documentation to prove that a client is eligible for a reduced tax rate beginning January 1, 2012.
Under new guidelines released by the Canada Revenue Agency (CRA) in April 2011, customers will need new declaration forms completed by end-investors – or have them provide the equivalent information requested on the declaration forms – to prove that the investor is:
- The beneficial owner of the income
- Resident in a country that has a tax treaty with Canada
- Eligible for treaty benefits on the income being paid.
TaxRelief, offered by DTCC’s Global Tax Services through The Depository Trust Company (DTC), a subsidiary of DTCC, enables customer firms and their clients to obtain tax relief on foreign-sourced income payments. The benefit comes either up front when a non-U.S. income payment is made, called "relief-at-source," or post payment in the form of accelerated refunds.
"Before Canada issued the declaration forms, it had generally accepted the use of the investor name and address for determining whether to apply treaty benefits," said Nardeo Ganesh, DTCC director, Global Tax Services. "The new forms will help the CRA ensure that the investment bank, broker/ dealer or other DTCC customer has sufficient information on file to prove that their clients are beneficial owners and entitled to treaty relief on Canadian income."
As an example of how this change will work, Ganesh cited U.S. partnerships that receive Canadian dividend payments and the accompanying tax relief. "The partnerships will need to identify all partners, and each partner may have to complete a declaration form in order to prove that they are entitled to treaty relief," he said. "If 10% of the partners are from a country with no tax treaty with Canada, the tax benefit will be reduced accordingly."
"More DTCC customers use TaxRelief to obtain tax benefits in Canada than in any other country," said Ganesh, "so we want to get the message out early about the changes in tax documentation and inform our customers what they will have to do to comply with the new requirements. We’ll be updating them periodically as we move closer to the January 1, 2012, deadline."
As a reference for customers, DTCC Global Tax Services is working with the CRA to update the TaxInfo document for Canada and will update the Frequently Asked Questions on Canada. These questions are posted on the TaxRelief product page on the DTCC website. Global Tax Services also will host a webinar on the new declaration forms in the fourth quarter of 2011.
In 2010, DTCC’s TaxRelief delivered more than $2.4 billion worth of tax benefits to customers. The service is used by more than 400 firms including many of the largest investment banks and broker/dealers. In 2011, DTCC expanded TaxRelief to include Hungary, Kazakhstan and Portugal.@
[For more information on the new Canadian documentation requirements, please refer to Important Notice B#0680-11, or contact Ian DeSacia at 212.855.3448 or firstname.lastname@example.org]