19 September 2007

New tax treaty on cross-border loans pending

The following was reported on in 19 September 2007 edition of “Toronto Star”.

Canada and the United States are expected to sign a new tax treaty this month that could increase Canadian companies' access to U.S. financing.

The two governments will eliminate the 10 per cent withholding tax on interest payments made by borrowers in one country to lenders in the other.

The long-awaited measure would mainly benefit Canadian companies that borrow from U.S. banks. The Conservative government estimates it will cost $250 million in lost tax revenue in the two fiscal years to 2009.

The Liberals support the change but warned that it should be accompanied by steps to plug a loophole allowing foreigners to load up on debt in Canada and avoid taxes.

Tax lawyers said they had been told the revised treaty would be signed by month's end.