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Agreement between the Government of Canada and the Government of the Union of Soviet Socialist Republics for the Avoidance of Double Taxation on Income [1986] CATSer 27 (2 October 1986)

E102371 - CTS 1986 No. 29

AGREEMENT BETWEEN THE GOVERNMENT OF CANADA AND THE GOVERNMENT OF THE UNION OF SOVIET SOCIALIST REPUBLICS FOR THE AVOIDANCE OF DOUBLE TAXATION ON INCOME

The Government of Canada and the Government of the Union of Soviet Socialist Republics in confirmation of their desire to promote the development of economic, cultural, commercial, scientific and technical cooperation between both States, and to avoid double taxation, have agreed as follows:

ARTICLE I

Personal Scope

This agreement shall apply to persons who for taxation purposes are residents of one or both of the Contracting States.

ARTICLE II

Taxes Covered

1. This Agreement shall apply to the following taxes on income, irrespective of the manner in which they are levied:

(a) in the case of Canada, the income taxes imposed by the Government of Canada,

(b) in the case of the Union of Soviet Socialist Republics, the income tax on foreign legal persons and the income tax on population.

2. The Agreement shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes.

ARTICLE III

General Definitions

1. In this Agreement, unless the context otherwise requires:

(a) the terms "a Contracting State" and "the other Contracting State" mean, as the context requires, Canada or the Union of Soviet Socialist Republics (the USSR);

(b) the term "person" means as individual and:

(i) in the case of the USSR, also any legal person or any other organization created under the laws of the USSR or any of its union republics and treated, for taxation purposes in the USSR, as a legal person;

(ii) in the case of Canada, also a company, any body corporate or any other entity which is treated for taxation purposes in Canada as a body corporate, or any other body of persons;

(c) the term "international traffic" means any transport by a ship or aircraft operated by a resident of a Contracting State except when the ship or aircraft is operated between places located in the other Contracting State;

(d) the term "competent authority" means:

(i) in the case of Canada, the Minister of National Revenue or his authorized representative,

(ii) in the case of the USSR, the Ministry of Finance of the USSR or its authorized representative.

2. As regards the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Agreement applies.

ARTICLE IV

Residence for Tax Purposes

1. For the purposes of this Agreement, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

(b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a citizen;

(d) if each State considers him as its citizen or if he is not a citizen of either of the States, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then its status shall be determined as follows:

(a) it shall be deemed to be a resident of the State under the laws of which it was created;

(b) if it was created under the laws of neither of the States, it shall be deemed to be a resident of the State in which its place of effective management is situated.

ARTICLE V

Permanent Establishment

1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which a resident of a Contracting State wholly or partly carries on business in the other Contracting States.

2. A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months.

3. Notwithstanding the provisions of paragraph 1, the following kinds of activity of a resident of a Contracting State shall be deemed not to be carried on through a permanent establishment in the other Contracting State:

(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the resident;

(b) the maintenance of a stock of goods or merchandise belonging to the resident solely for the purpose of storage, display or delivery;

(c) the maintenance of stock of goods or merchandise belonging to the resident solely for the purpose of processing by another person;

(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, for advertising or for collecting or disseminating information, for the resident;

(e) the maintenance of a fixed place of business solely for the purpose of carrying out development projects or scientific research works (including joint projects) for the resident, engineering, testing of samples of goods, machines and equipment and technical servicing of machines and equipment when of a preparatory or auxiliary character;

(f) the maintenance of a fixed place of business solely for the purpose of carrying on, for the resident, any other activity of a preparatory or auxiliary character;

(g) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (f) provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

4. Notwithstanding the provisions of paragraph 1, where a person other than an agent of an independent status to whom paragraph 5 applies is acting on behalf of a person who is a resident of a Contracting State and has, and habitually exercises in the other Contracting State an authority to conclude contracts in the name of the resident, that resident shall be deemed to have a permanent establish­ment in that other State in respect of any activities which the first-mentionned person undertakes for him unless the activities of the first-mentioned person are limited to those mentioned in paragraph 3.

5. A resident of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

6. The fact that a person (other than an individual) which is a resident of a Contracting State controls or is controlled by a person (other than an individual) which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either person a permanent establishment of the other.

ARTICLE VI

Profits

1. The profits of a resident of a Contracting State shall be taxable only in that State unless the resident carries on business in the other Contracting State through a permanent establishment situated therein. If the resident carries on or has carried on business as aforesaid, the profits of the resident may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

2. Subject to the provisions of paragraph 3, where a resident of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate person engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the resident of the first-mentioned State.

3. In the determination of the profits of a permanent establishment, there shall be allowed those deductible expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses, whether incurred in the State in which the permanent establishment is situated or elsewhere.

4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the resident.

5. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

6. Where profits include items of income which are dealt with separately in other Articles of this Agreement, then, the provisions of those Articles shall not be affected by the provisions of this Article.

ARTICLE VII

International Traffic

1. Profits derived by a resident of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

2. Notwithstanding the provisions of Article 6, profits derived from the operation of ships or aircraft used principally to transport passengers or goods exclusively between places in a Contracting State may be taxed in that State.

3. The provisions of paragraphs 1 and 2 shall also apply to profits referred to in those paragraphs derived by a resident of a Contracting State from its participation in a pool, a joint business or an international operating agency.

ARTICLE VIII

Dividends

1. Dividends paid by a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2. However, such dividends may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed 15 per cent of the gross amount of the dividends. The provisions of this paragraph shall not affect the taxation of the resident on the profits out of which the dividends are paid.

3. The term "dividends" as used in this Article means income from shares and any other income assimilated to income from shares by the taxation laws of the Contracting State of which the person making the distribution is a resident.

4. The provisions of paragraph 2 shall not apply if the beneficial owner of the dividends carries on business in the Contracting State of which the person paying the dividends is a resident and the dividends are attributed to a business carried on by him through a permanent establishment situated in that State. In such case the provisions of Article VI apply.

5. Nothing in this Agreement shall be construed as preventing a Contracting State from imposing on the earnings of a person (other than an individual) attributable to a permanent establishment in that State, tax in addition to the tax which would be chargeable on the earnings of a person (other than an individual) which is a resident of that State, provided that any additional tax so imposed shall not exceed 15 per cent of the amount of such earnings which have not been subjected to such additional tax in previous years. For the purpose of this provision, the term "earnings" means the profits attributable to a permanent establishment in a Contracting State in a year and previous years after deducting there from all income taxes, other than the additional tax referred to herein, imposed on such profits in that State.

ARTICLE IX

Interest

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof, shall be taxable only in that other State if it is paid:

(a) to the Government of that other State;

(b) to the central bank of that other State; or

(c) in respect of a loan made, guaranteed or insured by the Government of that other State or by such public body of that other State as is specified and agreed between the competent authorities of the Contracting States.

4. The term "interest" as used in this Article means income from government securities, bonds or debentures, as well as income which is subjected to the same taxation treatment as income from money lent by the laws of the State in which the income arises. However, the term "interest" does not include income dealt with in Article 8.

5. The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the interest carries on business in the Contracting State in which the interest arises and the interest is attributed to a business carried on by him through a permanent establishment situated in that State. In such case the provisions of Article VI shall apply.

6. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a subdivision, a local authority or a resident of that State. However, where interest is borne by a permanent establishment situated in a Contracting State, then such interest shall be deemed to arise in the Contracting State in which such permanent establishment is situated.

7. The limitation provided for under paragraph 2 shall not apply where the amount of the interest, having regard to the debt-claim for which it is paid, exceeds an amount which would have been agreed upon by the payer and the beneficial owner in the absence of a special relationship.

ARTICLE X

Royalties

1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed 10 percent of the gross amount of the royalties.

3. Notwithstanding the provisions of paragraph 2, copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or artistic work (but not including royalties in respect of motion picture films and works on film or videotape for us in connection with television) arising in a Contracting State and paid to a resident of the other Contracting State who is subject to tax thereon shall be taxable only in that other State.

4. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use:

(a) any copyright;

(b) any invention (whether or not protected by patent or author's certificate) or innovation;

(c) any industrial, commercial or scientific design, model or plan;

(d) any trademark or service mark;

(e) any trade name;

(f) motion picture films and works on film or videotape for use in connection with television;

(g) any industrial, commercial or scientific experience, secret formula or process; or

(h) any industrial, commercial or scientific equipment.

5. The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the royalties carries on business in the Contracting State in which the royalties arise and the royalties are attributed to a business carried on by him through a permanent establishment situated in that State. In such case the provisions of Article VI shall apply.

6. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a subdivision, a local authority or a resident of that State. However, where royalties are borne by a permanent establishment situated in a Contracting State, then such royalties shall be deemed to arise in the Contracting State in which such permanent establishment is situated.

7. The limitation provided for under paragraph 2 shall not apply where the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds an amount which would have been agreed upon by the payer and the beneficial owner in the absence of a special relationship.

ARTICLE XI

Income from Property

1. Income, profits and gains derived by a resident of a Contracting State from the use, lease or alienation of immovable property situated in the other Contracting State may be taxed in that other State.

2. For the purposes of this Agreement, the term "immovable property" shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. However, ships, boats and aircraft shall not be regarded as immovable property.

3. Profits and gains from the alienation of movable property forming part of the business property of a permanent establishment in a Contracting State may be taxed in that State. However, profits and gains from the alienation of ships or aircraft operated in international traffic by a resident of a Contracting State and movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.

ARTICLE XII

Income from Employment

1. Subject to the provisions of Articles XIII and XIV, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the calendar year concerned, and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

(c) the remuneration is not borne by a permanent establishment which the employer has in the other State.

3. Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised aboard a ship or aircraft operated in international traffic by a resident of a Contracting State, shall be taxable only in that State.

4. Notwithstanding the provisions of paragraphs 1 and 2, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from his personal activities as such exercised in the other Contracting State shall be taxable only in the first-mentioned State if such income:

(a) is derived in respect of tour performances and other public performances; or,

(b) represents sums of prizes, premiums and remuneration paid to participants and winners of sportive and other performances and competitions.

ARTICLE XIII

Directors' Fees

Directors' fees and other similar payments derived by a resident of the USSR in his capacity as a member of the board of directors or a similar organ of a company which is a resident of Canada, may be taxed in Canada.

ARTICLE XIV

Government Service

Wages, remuneration and other similar income derived by a citizen of a Contracting State in respect of work or employment in governmental agencies or establishments of that State in the discharge of governmental functions shall, if they are treated as such under the national law of that State, not be subject to tax in the other Contracting State. Individuals working in organizations carrying on commercial activities, such as employees or representatives of Soviet foreign trade organizations and employees or representatives of Canadian companies and organizations shall be deemed not to perform governmental functions.

ARTICLE XV

Students

Payments which a student, a postgraduate student or a trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.

ARTICLE XVI

Diplomatic and Consular Privileges

The provisions of this Agreement shall not affect tax privileges granted to diplomatic and consular missions, other establishments and organizations of the Contracting States which enjoy equality therewith in respect of tax privileges, members of diplomatic personnel and employees of these missions, establishments or organizations and also members of their families, in accordance with the general rules of international law and special agreements.

ARTICLE XVII

Elimination of Double Taxation

1. In the case of Canada, double taxation shall be avoided in the following manner. Subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions - which shall not affect the general principle hereof - and unless a greater deduction or relief is provided under the laws of Canada, tax payable in the USSR on profits, income or gains arising in the USSR shall be deducted from any Canadian tax payable in respect of such profits, income or gains.

2. In the case of the USSR, double taxation shall be avoided in conformity with the legislation of the USSR.

3. For the purposes of this Article, profits, income or gains of a resident of a Contracting State which are taxed in the other Contracting State in accordance with this Agreement shall be deemed to arise from sources in that other State.

ARTICLE XVIII

Non-Discrimination

A Contracting State shall not subject a resident of the other Contracting State to a higher or more burdensome taxation than the first-mentioned State would impose in respect of a resident of a third State. However, this provision shall not require the first-mentioned State to grant to residents of the other State tax privileges which are granted to residents of a third State by virtue of special agreements concluded between the first-mentioned State and that third State.

ARTICLE XIX

Settlement of Disputes

1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Agreement, he may, irrespective of the remedies provided by the domestic law of those States, address to the competent authority of the first-mentioned State an application in writing stating the grounds for claiming the revision of such taxation. The said application must be submitted within two years from the first notification of the action which gives rise to taxation not in accordance with the Agreement.

2. The competent authority referred to in paragraph 1 shall endeavour, if the objection appears to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Agreement.

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpreta­tion or application of the Agreement. The competent authorities of the Contracting States may also consult together, in due procedure, for the elimination of double taxation in cases not provided for in the Agreement.

ARTICLE XX

Exchange of Information

1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Agreement or of the domestic laws of the Contracting States concerning taxes covered by the Agreement insofar as the taxation thereunder is not contrary to the Agreement. Any information received by a Contracting State shall be treated in the same manner as information obtained under the domestic laws of that State and may be disclosed only to persons or authorities involved in the application of the Agreement.

2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligations:

(a) to carry out administrative measures at variance with the laws or the administrative practice of that or of the other Contracting State;

(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

(c) to supply information which would disclose any trade, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to the interest of the first-mentioned State.

ARTICLE XXI

Other Provisions

The provisions of this Agreement shall not be construed to restrict in any manner a more favourable tax treatment now or hereafter accorded

(a) by the laws of a Contracting State in the determination of the tax imposed by that State, or

(b) by any other agreement of a Contracting State.

ARTICLE XXII

Entry into Force

1. This Agreement is subject to ratification and the instruments of ratification shall be exchanged as soon as possible.

2. The Agreement shall enter into force on the day of the exchange of instruments of ratification and its provisions shall have effect:

(a) in respect of tax withheld at the source:

(i) in the case of Canada, on amounts paid or credited on or after the first day of January in the calendar year next following that in which the Agreement enters into force: and

(ii) in the case of the USSR, on income derived on or after the first day of January in the calendar year next following that in which the Agreement enters into force; and

(b) in respect of other taxes for taxation years beginning on or after the first day of January in the calendar year next following that in which the Agreement enters into force.

ARTICLE XXIII

Termination

This Agreement shall continue in effect indefinitely but either Contracting State may, on or before June 30 in any calendar year after the expiration of three years from the year of the entry into force of the Agreement, give to the other Contracting State a notice of termination in writing through diplomatic channels; in such event, the Agreement shall cease to have effect:

(a) in respect of tax withheld at the source:

(i) in the case of Canada, on amounts paid or credited on or after the first day of January in the calendar year next following that in which the notice of termination is given; and

(ii) in the case of the USSR, on income derived on or after the first day of January in the calendar year next following that in which the notice of termination is given; and

(b) in respect of other taxes for taxation years beginning on or after the first day of January in the calendar year next following that in which the notice of termination is given.

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Agreement.

DONE this 13th day of June 1985, at Moscow in duplicate, each in the English, French and Russian languages, all the texts being equally authentic.

James Kelleher

FOR THE GOVERNMENT OF CANADA

Vladimir Aleksandrovich Salnikov

FOR THE GOVERNMENT OF THE UNION OF SOVIET SOCIALIST REPUBLICS