8.3.1 [a] Explanation and Interpretation of the Treaty under U.S. Law

Paragraph 1 generally provides that profits of an enterprise of Canada from the operation of shipping and aircraft traffic are exempt from tax in the U.S., even if under Article VII (Business Profits) the Canadian enterprise had ticket offices or other permanent establishments throughout the United States. This is to facilitate the intended relief given the nature of the travel and transportation industry.

8.3.1 [b] Definition of Transportation Profits

Paragraph 2 provides that the type profits described in paragraph 1 include: profits from the rental of ships or aircraft operated in international traffic.

It is assumed that certain non-transport activities that are an integral part of the services by a transport company, or are ancillary to the enterprise’s operation of ships or aircraft in international traffic are understood to be covered in paragraph 1 although not specified in paragraph 2.

8.3.1 [c] U.S. Taxation of Canadian Shipping and Cruise Ships

Paragraph 3 provides an exception to Article VII (Business Profits) by enabling the U.S. to tax profits derived by a Canadian enterprise from the voyage of ship where the principal purpose of the voyage is to transport passengers or property between points in the U.S. (rather than in international traffic between Canada and the U.S.)

8.3.1 [d] Certain Motor Vehicle and Railway Profits Taxed by Canada

Paragraph 4 provides that profits from a Canadian resident from the operation of motor vehicles or railway as a common carrier or contract carrier and attributable to the transportation of passengers or property between a joint outside the U.S. and any other point are exempt from tax in the United States. Additionally, profits of such a person from the rental of motor vehicles (including trailers) or railway rolling stock, or from the use, maintenance, or rental of containers (including related equipment) used to transport passengers or property between a point outside the U.S. and any other point are exempt from tax in the United States.

8.3.1 [e] Joint Pool

Paragraph 5 clarifies that the profits or gains referred to above also apply to profits derived by a Canadian enterprise from participation in a pool, joint business or international operating agency.

8.3.1 [f] Additional Provisions for Land Transportation

Paragraph 6 provides that profits derived by a Canadian resident from the use, maintenance, or rental of railway rolling stock motor vehicles, trailers, or containers and related equipment used in the U.S. for a period not expected to exceed 183 days in the aggregate in any 12 months period are exempt from tax in the U.S. except to the extent that the profits are attributable to a PE, in which case the U.S. has the right to tax under Article VII.

References:

Advisor’s Guide to Canada – U.S. Tax Treaty

By:  Vitaly Timokhov, Raymond Montero, David Kerzner

Published by: Thomson Carswell

Tags: International tax, Canada U.S. Tax treaty, Income from real property, treaty articles, Canadian domestic law, rental income, royalty income, business income, source based taxation, taxation of investments, partnership taxation issues, finance of real property, capital gains.