Question
Assume that in the question entitled “Paid-up Capital Increase by an Unlimited Liability Company” on page 4, a Luxembourg société à responsabilité limitée (Luxco) is inserted between USco and ULC. Luxco is considered to be a resident of Luxembourg for Canadian tax purposes and is therefore eligible for treaty relief under the Canada-Luxembourg treaty,[Footnote 12] but is disregarded for US tax purposes.
Would the 5 percent withholding tax rate under the Canada-Luxembourg treaty generally apply to dividends paid by ULC to Luxco?
Response
The 5 percent withholding rate will normally apply if Luxco is the beneficial owner of the dividends. Our recent views on the meaning of “beneficial owner” in the light of Canada v. Prévost Car Inc. [Footnote 13] are set out in document no. 2009‑0321451C6.[Footnote 14]