Tax Treaty Case Law around the Globe 2017

S. 333Canada: Limitation on Elimination of Double Taxation under the Canada-Brazil Income Tax Treaty

David G. Duff

1. S. 334Introduction

Under its domestic law, Canada grants a foreign tax credit for any “income or profits tax” that is paid by a taxpayer for a taxation year to the government of a country other than Canada. According to the relevant provision of the Canadian Income Tax Act, this credit is calculated separately for any “business-income tax” and any “non-business-income tax” paid for the year to the government of each country other than Canada, and is generally limited in each case to a proportion of Canadian tax otherwise payable for the year based on the ratio of the relevant foreign source income to the taxpayer’s worldwide income. In addition to this domestic rule, all of Canada’s tax treaties contain a provision for the elimination of double taxation like article 23B of the OECD. Model, which requires each contracting state to allow as a deduction from tax on the income of a resident of that state an amount equal to income tax paid in the other contracting state.

Unlike the OECD Model, however, which limits this deduction to “that part of the income tax … as computed before the ...