The relevance of the OECD and UN Model Conventions and their Commentaries for the interpretation of Canadian tax treaties

Canada is a small, open economy dependent on trade for its prosperity. It has an unusually large network of bilateral tax treaties. These include agreements with its NAFTA partners, Mexico and the USA, each of the other OECD Member countries, the so-called ‘BRIC’ group of Brazil, Russia, India and China, and many less significant trading partners. Notably, there are no treaties with Hong Kong or Taiwan, despite the significance of its trade and investment relationships with these two jurisdictions.

As an original Member country of the OECD, Canada has generally concluded its tax treaties on the basis of the most recent OECD Model Tax Convention on Income and on Capital (OECD Model) as it has evolved since 1963. Canada was not represented in the UN's Group of Experts that worked to prepare the first version of the United Nations Model Double Taxation Convention between Developed and Developing Countries (UN Model) published in 1980, or in the Ad Hoc Group of Experts on International Cooperation in Tax Matters that prepared the revisions for the 2001 UN Model, and is not currently represented on the Group of Experts. However, Canada's dual status as both a developed, wealthy, capital-exporting nation and, especially in relation to Japan, the UK and the USA, as a capital-importing country has resulted in some significant divergences from the OECD Model. These are most obvious in its tax treaty with the USA, which in the broader range and detail of its provisions reflects the unique degree of economic integration of Canada with the USA. In addition, Canada follows the UN Model in, for example, insisting on a provision allowing the source state to tax ‘other income’ and retaining the source-state taxation of certain royalties. It has also included an expanded ‘service PE’ provision in its treaty with the USA and in some of its other treaties, notably those with developing countries, such as Armenia and Mongolia.