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Protocol to the Tax Convention between the Government of Canada and the Government of the French Republic signed on May 2, 1975 and amended by the Protocol of January 16, 1987 [1998] CATSer 16 (1 September 1998)

E102413 - CTS 1998 No. 12

PROTOCOL TO THE TAX CONVENTION BETWEEN THE GOVERNMENT OF CANADA AND THE GOVERNMENT OF THE FRENCH REPUBLIC SIGNED ON MAY 2, 1975 AND AMENDED BY THE PROTOCOL OF JANUARY 16, 1987

The Government of Canada and the Government of the French Republic, desiring to amend the Convention between Canada and France for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, signed on May 2, 1975 and amended by the Protocol of January 16, 1987 (hereinafter referred to as «the Convention»), have agreed as follows:

ARTICLE 1

Paragraphs 3 and 4 of Article 2 of the Convention shall be deleted and replaced by the following:

"3. The existing taxes to which the Convention shall apply are in particular:

(a) in the case of Canada, the taxes imposed by the Government of Canada under the Income Tax Act (hereinafter referred to as “Canadian tax”);

(b) in the case of France, the income tax, the corporation tax, the tax on wages and salaries (regulated by the provisions of the Convention applicable, as the case may be, to business profits or to income from independent personal services), the solidarity tax on net wealth, and any withholding tax, prepayment or advance payment with respect to the aforesaid taxes, (hereinafter referred to as “French tax”).

4. Notwithstanding the preceding provisions of this Article, the existing taxes to which the Convention shall apply also include, in the case of France, the inheritance tax, but only for the application of Articles 4, 23, 25 and 26.

5. The Convention shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of important changes which have been made in their respective taxation laws."

ARTICLE 2

1. Subparagraph (e) of paragraph 1 of Article 3 of the Convention shall be deleted and replaced by the following:

“(e) 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 France, the Minister in charge of the Budget or his authorized representative;”.

2. Paragraph 2 of Article 3 of the Convention shall be deleted and replaced by the following:

“2 As regards the application of the Convention 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 Convention applies, any meaning under the tax laws of that State prevailing over a meaning given to the term under other laws of that State.”

ARTICLE 3

Article 4 of the Convention shall be deleted and replaced by the following:

“ARTICLE 4

Resident

1. For the purposes of this Convention, the term “resident of a Contracting State” means:

(a) any person who, under the law 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 but the term does not include any person who is liable to tax in that State in respect only of income from sources in that State;

(b) that State, its provinces in the case of Canada, the local authorities of that State or of its provinces, and their agencies or instrumentalities;

(c) in the case of France, partnerships or other bodies of persons which have their place of effective management in France, and whose partners, shareholders or other members are personally liable to tax therein in respect of their share of the profits under domestic French law; but, with respect to the benefits granted by Canada under the Convention, such partnerships and bodies of persons shall not be treated as residents of France except insofar as their partners, shareholders or other members are liable to French tax on income in respect of which these benefits are granted;

(d) any other person constituted and established in that State and exempted from tax in that State, where the competent authorities agree that for the purposes of the Convention such person shall be deemed to be a resident of that State.

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 national;

(d) if he is a national of both States or of neither of them, 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, the competent authorities of the Contracting States shall endeavour to settle the question by mutual agreement. In the absence of such agreement, such person shall not be considered to be a resident of either Contracting State for the purposes of enjoying benefits under the Convention.”

ARTICLE 4

Article 5 of the Convention shall be deleted and replaced by the following:

“ARTICLE 5

Permanent Establishment

1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2. The term “permanent establishment” includes especially:

(a) a place of management;

(b) a branch;

(c) an office;

(d) a factory;

(e) a workshop; and

(f) a mine, an oil or gas well, a quarry or other place of extraction of natural resources, it being understood that a place of exploration of natural resources is also considered a permanent establishment if it constitutes a fixed place of business within the meaning of paragraph 1.

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

4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

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

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

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

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

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

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

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 applies - is acting on behalf of an enterprise and has, and habitually exercises in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that state in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that 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.

7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company 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 company a permanent establishment of the other.”

ARTICLE 5

1. The first sentence of paragraph 2 of Article 6 of the Convention shall be deleted and replaced by the following:

“For the purposes of this Convention, the term “immovable property” has the meaning which it has under the law of the Contracting State in which the property in question is situated. It is understood that the term includes options and similar rights relating to such property.”

2. There shall be added to Article 6 of the Convention a new paragraph 5, written as follows:

"5. Where ownership of shares, interests or other rights in a company gives the owner the enjoyment of immovable property situated in a Contracting State and held by that company, the income that the owner derives from the direct use, letting or use in any other form of his right of enjoyment may be taxed in that State. The provisions of this paragraph shall apply notwithstanding the provisions of Articles 7 and 14.”

ARTICLE 6

Article 9 of the Convention shall be deleted and replaced by the following:

"Article 9

Associated Enterprises

Where:

(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State; or

(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State;

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly."

ARTICLE 7

Article 10 of the Convention shall be deleted and replaced by the following:

"Article 10

Dividends

1. Dividends paid by a company which is 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 of which the company paying the dividends is a resident 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:

(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company liable to corporation tax which:

(i) controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends where that company is a resident of Canada;

(ii) holds directly or indirectly at least 10 per cent of the capital of the company paying the dividends where that company is a resident of France;

(b) notwithstanding the provisions of subparagraph (a), 10 per cent of the gross amount of the dividends if they are paid by a non-resident owned investment corporation that is a resident of Canada to a company that is a resident of France and that controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends;

(c) 15 per cent of the gross amount of the dividends in all other cases.

The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

3. (a) A resident of Canada who is the beneficial owner of dividends received from a company which is a resident of France, which dividends, if received by a resident of France would entitle such resident to a tax credit (“avoir fiscal”), shall be entitled to a payment from the French Treasury of an amount equal to such tax credit (“avoir fiscal”), subject to the deduction from such payment of the tax provided for in subparagraph (c) of paragraph 2.

(b) The provisions of subparagraph (a) shall apply only to a resident of Canada who is:

(i) an individual; or

(ii) a company other than a company that holds directly or indirectly at least 10 per cent of the capital of the company resident in France paying the dividends.

(c) The provisions of subparagraph (a) shall not apply if the beneficial owner of the dividends is not liable to Canadian tax on the dividends and the payment of the French Treasury. However, the competent authorities of the Contracting States may agree to also apply the provisions of subparagraph (a) to any organization referred to in subparagraph (a) of paragraph 7 of Article 29, but only with respect to that part of the dividends which corresponds to the rights owned in such organizations by residents of Canada and provided that, if so requested by the competent authorities, that part of the dividends is taxed in the hands of such residents.

(d) The provisions of subparagraph (a) shall not apply if the beneficial owner of the dividends does not, when asked by the French tax administration, justify that he is the owner of the interest giving rise to the payment of the dividends and that the holding of that interest does not have as its main objective, or as one of its main objectives, to allow another person, whether a resident of a Contracting State or not, to take advantage of the provisions of subparagraph (a).

(e) The gross amount of the payment from the French Treasury referred to in subparagraph (a) shall be treated as a dividend for the application of this Convention.

4. A resident of Canada who receives dividends paid by a company which is a resident of France shall, unless it is eligible to receive a payment from the French Treasury referred to in subparagraph (a) of paragraph 3, be entitled to the refund of the prepayment to the extent that the prepayment has effectively been paid by the company with respect to the dividends. The gross amount of the prepayment refunded shall be deemed to be a dividend for the purposes of the Convention. It may be taxed in France in accordance with the provisions of paragraph 2.

5. The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income which is subjected to the taxation treatment of distributions or to same taxation treatment as income from shares by the laws of the Contracting State of which the company making the distribution is a resident.

6. The provisions of paragraphs 1, 2, 3 and 4 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

7. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

8. Nothing in the Convention shall prevent a Contracting State from imposing on the earnings attributable to a permanent establishment, situated in that State, of a company which is a resident of the other Contracting State a tax in addition to the tax allowable under the other provisions of the Convention, provided that any additional tax so imposed shall not exceed 5 per cent of the amount of such earnings. This additional tax shall also apply to profits or gains derived from the alienation of immovable property situated in a Contracting State by a company which is a resident of the other Contracting State, whether or not that company has a permanent establishment in the first-mentioned State. For the purpose of this provision, the term “earnings” means the profits or gains after deducting there from the taxes, other than the additional tax referred to herein, imposed on such profits or gains by the first-mentioned State."

ARTICLE 8

Subparagraph (c) of paragraph 3 of Article 11 of the Convention shall be deleted and replaced by the following:

"(c) is paid with respect to indebtedness resulting from the sale or furnishing on credit by a resident of the other Contracting State of any equipment, merchandise or services, except where the sale or furnishing is made between associated enterprises within the meaning of subparagraphs (a) or (b) of Article 9 or where the payer and the recipient of the interest are associated enterprises within the meaning of the same subparagraphs."

ARTICLE 9

1. Paragraph 3 of Article 12 of the Convention shall be deleted and replaced by the following:

"3. Notwithstanding the provisions of paragraph 2:

(a) royalties arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner of the royalties, shall be taxable only in that other State if they are:

(i) 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 nor royalties in respect of works on film or videotape or other means of reproduction for use in connection with television broadcasting), or

(ii) royalties for the use of, or the right to use, computer software, or

(iii) royalties for the use of, or the right to use, any patent or for information concerning industrial, commercial or scientific experience (but not including any such information provided in connection with a rental or franchise agreement);

(b) royalties arising in a Contracting State and paid to the government of the other Contracting State or to an organizations of that other State approved by the competent authorities of the Contracting States, shall be taxable only in that other State.

2. The words “Committee of the Bureau of Film Festivals established under Order-in-Council P.C. 1968-400 dated February 29, 1968” in subparagraph (b) of paragraph 4 of Article 12 of the Convention shall be replaced by the words “Canadian Committee of selection that the Bureau of Film Festivals is authorized to convene under Order-in-Council P.C. 1975-2883 dated December 11, 1975."

ARTICLE 10

Article 13 of the Convention shall be deleted and replaced by the following:

"Article 13

Capital Gains

1. (a) Gains from the alienation of immovable property may be taxed in the Contracting State in which such property is situated.

(b) Gains from the alienation of shares or other rights in a company the assets of which consist principally of immovable property situated in a Contracting State may be taxed in that State.

(c) Gains from the alienation of an interest in a partnership or a trust the assets of which consist principally of immovable property situated in a Contracting State may be taxed in that State.

(d) For the purposes of subparagraphs (b)and (c), and for the purposes of paragraph 2 of Article 22, the term “immovable property situated in a Contracting State” includes immovable property situated in that State which is referred to in Article 6, and the shares or other rights the value of which is derived, directly or indirectly, principally from immovable property situated in that State, and an interest in a partnership or trust, the value of which is derived, directly or indirectly, principally from immovable property situated in that State; but it does not include property, other than rental property, through which the business of the company, partnership or trust is carried on.

2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base may be taxed in that other State.

3. Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated by that enterprise in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.

4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3, shall be taxable only in the Contracting State of which the alienator is a resident.

5. The provisions of paragraph 4 shall not prevent a Contracting State from taxing, according to its law, gains derived by an individual who is a resident of the other Contracting State from the alienation of any property, if the alienator:

(a) is a national of the first-mentioned State or has been a resident of that State for ten years or more prior to the date of the alienation of the property, and

(b) has been a resident of that first-mentioned State at any time within the five year period immediately preceding the date of the alienation."

ARTICLE 11

Paragraph 3 of Article 15 of the Convention shall be deleted and replaced by the following:

"3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State may be taxed in that State."

ARTICLE 12

Article 17 of the Convention shall be deleted and replaced by the following:

"Article 17

Artistes and Sportsmen

1. Notwithstanding the provisions of Articles 14 and 15, 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 a sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.

2. Where income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.

3. The provisions of paragraphs 1 and 2 shall not apply to income in respect of activities exercised by a resident of a Contracting State as an entertainer or a sportsman in the other Contracting State if the visit to that other State is principally supported, directly or indirectly, by public funds of the first-mentioned State, its provinces in the case of Canada, its local authorities, or their agencies or instrumentalities thereof. In such case, the income shall be taxable only in the first-mentioned State."

ARTICLE 13

Paragraph 2 of Article 18 of the Convention shall be deleted and replaced by the following:

"2. War pensions and allowances (including pensions and allowances paid to war veterans or paid as a consequence of damages or injuries suffered as a consequence of a war) arising in a Contracting State and paid to a resident of the other Contracting State shall, notwithstanding the provisions of Article 23, be exempt from tax in that other State to the extent that they would be exempt from tax if received by a resident of the first mentioned State."

ARTICLE 14

Article 19 of the Convention shall be deleted and replaced by the following:

"Article 19

Government Service

1. Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a province in the case of Canada or a local authority or an instrumentality thereof to an individual who is a national of that State in respect of services rendered to that State, province, authority or agency or instrumentality, shall be taxable only in that State.

2. The provisions of paragraph 1 shall not apply to salaries, wages and other similar remuneration paid in respect of services rendered in connection with a trade or business carried on by a Contracting State, a province in the case of Canada, a local authority, or by one of their agencies or instrumentalities."

ARTCLE 15

Article 22 of the Convention shall be deleted and replaced by the following:

"Article 22

Capital

1. Capital represented by immovable property owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.

2. Capital represented by shares or other rights in a company the assets of which consist principally of immovable property situated in a Contracting State and referred to in subparagraph (d) of paragraph 1 of Article 13, may be taxed in that State.

3. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting state has in the other Contracting State or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other State.

4. Capital represented by shares or other rights (other than shares or other rights referred to in paragraph 2) forming part of a substantial interest in a company which is a resident of a Contracting State may be taxed in that State. A substantial interest is considered to exist when an individual holds, alone or with related persons, directly or indirectly, shares or other rights the total of which gives right to at least 25 per cent of the profits of the company.

5. Capital of an enterprise of a Contracting State represented by ships and aircraft operated by that enterprise in international traffic or by movable property pertaining to their operation, or by containers referred to in paragraph 4 of Article 8, shall be taxable only in that State.

6. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

7. Notwithstanding the preceding provisions of this Article, for the purposes of taxation with respect to the solidarity tax on net wealth referred to in subparagraph (b) of paragraph 3 of Article 2 of an individual who is a resident of France and who is a national of Canada but not a national of France, the assets situated outside of France that such person owns on the first of January of each of the five years following the calendar year in which he becomes a resident of France shall be excluded from the base of assessment of the taxes relating to each of those five years. If such an individual loses the status of resident of France for a period of at least three years and then again becomes a resident of France, the assets situated outside of France that such a person owns on the first of January of each of the five years following the calendar year in which again he becomes a resident of France shall be excluded from the base of assessment of the taxes relating to each of those five years."

ARTICLE 16

1. There shall be added to paragraph 1 of Article 23 of the Convention three new subparagraphs, written as follows:

" (c) In determining the amount of tax payable in Canada for a taxation year by an individual who died in that year and, at the time was a resident of Canada, the amount of any inheritance tax payable in France, after deduction of the credit provided for in paragraph 2 (c) (ii), in respect of property situated in France which form part of the estate of that person shall be allowed as a deduction from the amount of any tax otherwise payable in Canada, taking into account the deduction that is provided for under subparagraph (a) for tax payable in France, on income, profits or gains of the individual arising in France in that year.

(d) For the purposes of this paragraph, profits, income or gains of a resident of Canada which may be taxed in France in accordance with the Convention shall be deemed to arise from sources in France.

(e) Where in accordance with any provision of the Convention income derived or capital owned by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income or capital, take into account the exempted income or capital."

2. Paragraphs 2 and 3 of Article 23 of the Convention shall be deleted and replaced by the following:

"2. In the case of France, double taxation shall be avoided as follows:

(a) income arising in Canada and taxable or taxable only in Canada in accordance with the provisions of the Convention shall be taken into account in calculating the French tax when the recipient is a resident of France and the income is not exempt from the corporation tax under French law. In such case, the Canadian tax shall not be deductible from such income, but the recipient shall be entitled to a tax credit deductible from the French tax. This tax credit is equal:

(i) for income not referred to in (ii), to the amount of French tax corresponding to such income;

(ii) for income referred to in Articles 10, 11 and 12, in paragraphs 1 and 5 of Article 13, in paragraph 3 of Article 15, in Article 16, in paragraphs 1 and 2 of Article 17, in paragraph 3 of Article 18 and in Article 21, to the amount of tax paid in Canada in accordance with the provisions of those Articles; however, it may not exceed the amount of French tax corresponding to such income. It is understood that the term “amount of tax paid in Canada” means the amount of Canadian tax effectively and finally paid in respect of such income, in accordance with the Convention, by the resident of France receiving such income.

(b) A resident of France who owns taxable capital in Canada in accordance with the provisions of paragraphs 1, 2, 3 or 4 of Article 22 may also be taxed in France in respect of such capital. The French tax is calculated subject to a deduction of a tax credit equal to the amount of Canadian tax on such capital. This tax credit shall not exceed that amount of the French tax which is attributable to such capital.

(c) Notwithstanding any other provision of the Convention:

(i) where a deceased person was at the time of his death a resident of France, France shall apply the inheritance tax to all of the property taxable in accordance with its domestic legislation and shall allow as a deduction from that tax an amount equal to the Canadian tax paid on the gains which, at the time of death and under the provisions of the Convention, were taxable in Canada; such deduction shall not, however, exceed that share of the French inheritance tax, as computed before the deduction is given, attributable to the property in respect of which the deduction shall be allowed;

(ii) where a deceased person was at the time of his death a resident of Canada, France shall apply the inheritance tax to all of the property taxable in accordance with its domestic legislation and shall allow as a deduction from that tax an amount equal to the Canadian tax paid on the gains which, at the time of death and under the provisions of paragraph 4 of Article 13, were taxable only in Canada, and that are not referred to in paragraph 5 of the same Article; such deduction shall not, however, exceed the lesser of the two following shares:

(aa) the share of the inheritance tax, as calculated before the deduction is given, attributable to the property from the alienation of which are derived the gains referred to above and in respect of which the deduction shall be allowed; and

(bb) the share of the Canadian tax attributable to such property, as calculated before the deduction provided for in paragraph 1 (c).

(d) It is understood that the term “amount of French tax corresponding to such income” used in subparagraph (a) means:

(i) where the tax payable in respect of such income is calculated by applying a proportional rate, the product of the taxable amount of such net income multiplied by the rate which is applied to such net income;

(ii) where the tax payable in respect of such income is calculated by applying a progressive scale, the product of the taxable amount of such net income multiplied by the rate resulting from the ratio between the tax actually payable in respect of the total net income taxable under the laws of France and the amount of such total net income.

This interpretation applies by analogy to the term “that amount of the French tax which is attributable to such capital” used in subparagraph (b) as well as to the terms “share of the French inheritance tax, as calculated before the deduction is given, attributable to the property in respect of which the deduction shall be allowed” and “share of the Canadian tax attributable to such property” used in subparagraph (c).

3. The provisions of the Convention, and in particular those of this Article, shall not prevent the application of the domestic legislation of a Contracting State:

(a) which authorizes enterprises of that State to determine their taxable profits on the basis of a consolidation which may includes the results of subsidiaries which are resident in the other Contracting State, or permanent establishments situated in that other State; or

(b) in accordance with which the first-mentioned State determines the taxable profits of enterprises of that first-mentioned State by deducting the losses of subsidiaries which are resident in the other Contracting State or of permanent establishments situated in that other State, and by including the profits of these subsidiaries or of these permanent establishments up to the amount of the losses deducted."

ARTICLE 17

Paragraph 1 of Article 24 of the Convention shall be deleted and replaced by the following:

"1. Individuals who are nationals of a Contracting State shall not be subject in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which individuals who are nationals of that other State in the same circumstances are or may be subjected, notably with respect to the residence. This provision shall apply to individuals whether or not they are residents of one of the Contracting States."

ARTICLE 18

1. Paragraph 3 of Article 25 of the Convention shall be deleted and paragraphs 4 and 5 shall become paragraphs 3 and 4 respectively.

2. There shall be added to Article 25 of the Convention a new paragraph 5, written as follows:

"5. If any question, difficulty or doubt arising as to the interpretation or application of the Convention cannot be resolved or dealt with by the competent authorities as a result of the application of the provisions of paragraphs 1, 2 or 3, these questions, difficulties or doubts may, if the competent authorities agree, be submitted to an arbitration commission. The decisions of the commission shall have the force of law. The composition of the commission and the arbitration procedures shall be determined, after consultation between the competent authorities, through an exchange of diplomatic notes between the Contracting States. The provisions of this paragraph shall take effect from the date agreed to in the exchange of diplomatic notes."

ARTICLE 19

Article 26 of the Convention shall be deleted and replaced by the following:

"Article 26

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 Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation there under is not contrary to the Convention. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

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

(a) to carry out administrative measures at variance with the laws and 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, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public)."

ARTICLE 20

1. Paragraph 1 of Article 29 of the Convention shall be deleted and replaced by the following:

"1. The provisions of this Convention shall not prevent:

(a) Canada from imposing a tax on amounts included in the income of a resident of Canada with respect to a partnership, trust, or controlled foreign affiliate, in which he has an interest;

(b) France from applying the provisions of Articles 209 B and 212 of the “Code général des impôts” or other identical or substantially similar provisions which would amend or replace them."

2. Paragraph 3 of Article 29 of the Convention shall be deleted and replaced by the following:

"3. The competent authorities of the Contracting States may settle the mode of application of the Convention. In particular, they may prescribe the formalities that must be followed by a resident of a Contracting State to obtain, in the other Contracting State, the exemptions or reductions of tax or other tax benefits provided for by the Convention. Such formalities may include the filing of a form certifying residency, indicating in particular the nature and the amount or value of the income or of the capital in question, certified by the tax authorities of the first-mentioned State."

3. Paragraph 5 of Article 29 of the Convention shall be deleted and replaced by the following:

"5. Contributions in a year in respect of services rendered in that year paid by, or on behalf of, an individual who is a resident of one of the Contracting States or who is temporarily present in that State, to a pension plan that is recognized for tax purposes in the other Contracting State shall, during a period not exceeding in the aggregate sixty months, be treated in the same way for tax purposes in the first-mentioned State as a contribution paid to a pension plan that is recognized for tax purposes in the first-mentioned State, provided that:

(a) such individual was regularly contributing to the pension plan (or to another pension plan for which that plan has been substituted) over a period ending immediately before he became a resident of or temporarily present in the first-mentioned State; and

(b) the competent authority of the first-mentioned State agrees that the pension plan corresponds generally to a pension plan recognized for tax purposes by that State.

For the purposes of this paragraph, the term “pension plan” includes especially a pension plan created under a public social security system."

4. There shall be added to Article 29 of the Convention a new paragraph 7, written as follows:

"7. (a) A mutual fund in securities constituted and established in a Contracting State, not subject to tax in that State, and which receives dividends paid by a company which is a resident of the other Contracting State or interest arising in that other State, may claim as a whole the benefit of the reductions or exemptions of taxes provided for under the Convention for the fraction of the income which corresponds to the rights held in that organization by residents of the first-mentioned State and which is taxable in the hands of those residents.

(b) Notwithstanding the provisions of Article 10, dividends paid by a company which is a resident of a Contracting State to an organization that was constituted and is established in the other Contracting State and is operated exclusively to administer or provide benefits under one or more pension or retirement plans, shall be exempt from tax in the first-mentioned State provided that:

(i) the organization is the beneficial owner of the dividends and is generally exempt from tax in the other State; and

(ii) the organization does not own directly or indirectly more than 5 per cent of the capital nor more than 5 per cent of the voting stock of the company paying the dividends; and

(iii) the principal class of shares of the company paying the dividends is regularly traded on a stock exchange situated in the first-mentioned State.

(c) Notwithstanding the provisions of Article 11, interest arising in a Contracting State and paid to an organization that was constituted and is established in the other Contracting State and is operated exclusively to administer or provide benefits under one or more pension or retirement plans, shall be exempt from tax in the first-mentioned State provided that:

(i) the organization is the beneficial owner of the interest and is generally exempt from tax in the other State; and

(ii) the interest is not derived from the carrying on a trade or a business by the organization or from an associated person within the meaning of subparagraphs (a) or (b) of Article 9."

5. There shall be added to Article 29 of the Convention a new paragraph 8, written as follows:

"8. Where an enterprise of a Contracting State that is exempt from tax in that State on the profits of its permanent establishments which are not situated in that State derives income from the other Contracting State, and that income is attributable to a permanent establishment which that enterprise has in a third jurisdiction, the tax benefits that would otherwise apply under the other provisions of the Convention will not apply to any item of income on which the combined tax in the first mentioned State and in the third jurisdiction is less than 60 per cent of the tax that would be imposed in the first-mentioned State if the income were earned or received in that State by the enterprise and were not attributable to the permanent establishment in the third jurisdiction. Any dividends, interest, or royalties to which the provisions of this paragraph apply shall be subject to tax in the other State at a rate not exceeding 15 per cent of the gross amount thereof. Any other income to which the provisions of this paragraph apply shall be subject to tax under the provisions of the domestic law of the other State, notwithstanding any other provision of the Convention. The preceding provisions of this paragraph shall not apply:

(a) if the income derived from the other State is in connection with or incidental to the active conduct of a trade or business carried on by the permanent establishment in the third jurisdiction (other than the business of making or managing investments unless these activities are banking or insurance activities carried on by a bank or insurance company);

(b) if, when France is the first-mentioned State, France taxes the profits of such permanent establishment according to the provisions of Articles 209 B or 209 quinquies of the French “Code général des impôts”, as they may be amended without changing the general principle hereof; or

(c) when France is the first-mentioned State, to income taxed by Canada according to Section 91 of the Income Tax Act, as it may be amended without changing the general principle hereof."

6. There shall be added to Article 29 of the Convention a new paragraph 9, written as follows:

"9. Subject to reciprocity, the exemptions from tax and other tax benefits provided for by French laws for the benefit of the French State, its local authorities or their agencies or instrumentalities whose activities are not the carrying on of a trade or business, shall apply in the same conditions respectively to:

(a) the Canadian State, its provinces, or organizations whose activities are not the carrying on of a trade or business, created within the framework of an agreement concluded or approved by the Contracting States;

(b) Canadian local authorities;

(c) agencies or instrumentalities of the Canadian State, its provinces or its local authorities, whose activities are identical or substantially similar to those of the French instrumentalities considered.

The provisions of this paragraph shall also apply, subject to reciprocity, to French taxes other than those referred to in Article 2, except for taxes owed in respect of services rendered."

7. Paragraph 7 of Article 29 of the Convention shall become paragraph 10.

ARTICLE 21

1. Each Contracting State shall notify to the other the completion of the procedure required for the bringing into force of this Protocol. The Protocol shall enter into force on the first day of the second month following the day on which the later of these notifications is received.

2. The provisions of the Protocol shall apply:

(a) in Canada:

(i) in respect of tax withheld at source, for amounts paid or credited to non-residents on or after the day on which the Protocol enters into force; and

(ii) in respect of other taxes, for any taxation year beginning on or after the day on which the Protocol enters into force;

(b) in France:

(i) in respect of the withholding taxes, for any amount paid on or after the day on which the Protocol enters into force;

(ii) in respect of taxes on income which are not levied by way of withholding tax, to income earned in any calendar year or relating to any accounting period beginning on or after the day on which the Protocol enters into force; and

(iii) in respect of other taxes, to taxation years with respect to taxable events occurring on or after January 1 following the year in which the Protocol enters into force.

3. Notwithstanding the provisions of paragraph 2:

(a) the provisions of subparagraph (a) of paragraph 2 of Article 10 of the Convention, as modified by the Protocol, shall apply in respect of Canadian tax withheld at source to amounts paid on or after the day on which the Protocol enters into force, except that the “5 per cent” percentage shall be replaced by:

(i) “7 per cent” for amounts paid in 1995; and

(ii) “6 per cent” for amounts paid in 1996;

(b) the provisions of paragraph 8 of Article 10 of the Convention, as modified by the Protocol, shall apply in respect of other Canadian taxes for taxable periods beginning on or after the day on which the Protocol enters into force, except that the “5 per cent” percentage is replaced by the following percentages for taxable periods beginning on or after that date and ending in the course of the following years:

(i) 1995: “7 per cent”;

(ii) 1996: “6 per cent”.

4. Notwithstanding the provisions of paragraph 2, the provisions of paragraph 9 of Article 29 of the Convention, as modified by the Protocol, shall apply for taxation years not prescribed on the date of entry into force of the Protocol.

5. The provisions of the Convention between Canada and France for the avoidance of double taxation and the prevention of fiscal evasion in relation to succession duties signed at Paris on March 16, 1951, shall cease to have effect with respect to estates of persons deceased on or after the first day of January of the year next following that during which the Protocol enters into force. That Convention shall terminate on the last date on which it has effect in accordance with the provisions of this paragraph.

6. The Agreement of October 19, 1932, providing for the exemption from taxation of profits derived from the operation of ships is terminated.

ARTICLE 22

1. This Protocol shall remain in force as long as the Convention remains in force.

2. The competent authorities of the Contracting States shall be empowered, after the entry into force of the Protocol, to publish the text of the Convention as amended by the Protocol of January 16, 1987 and by this Protocol.

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

DONE in duplicate at Ottawa, on this 30th day of November 1995, in the English and French languages, each version being equally authentic.

FOR THE GOVERNMENT OF CANADA

Jean-Pierre Juneau

FOR THE GOVERNMENT OF THE FRENCH REPUBLIC

Alfred Seifer-Gaillardin