Tax Treaty Case Law around the Globe 2024

14.1. Introduction

Husky Energy Inc. v. The King is the fifth treaty-shopping case that has been decided by a Canadian court, and the first in which the Canadian revenue authority has prevailed. Although concluding that the transactions at issue were not subject to Canada’s general anti-avoidance rule (GAAR), the Court held that the reduced withholding tax rate under article 10(2)(a) of the Canada-Luxembourg Tax Treaty did not apply to dividends paid by a Canadian company to two Luxembourg companies on the grounds that they were not the beneficial owners of the dividends.

While the decision is a victory for the Canadian revenue authority, it does not depart from established principles on the meaning of beneficial ownership for the purposes of Canadian and international tax law, and is also consistent with previous Canadian jurisprudence on the application of the GAAR to tax treaty shopping. More importantly, though, the case illustrates a potential asymmetry between domestic laws imposing non-resident withholding taxes and treaty provisions that reduce otherwise applicable withholding tax rates, which may require legislative change.

14.2. Facts of the case

14.2.1. Appellants

The case in...