On November 8, 2011 the protocol to Barbados – Canada Income Tax Treaty was signed but has not been ratified by Canada as yet. It is expected to be ratified this year. The protocol now specifically addresses the IBC entity which was previously carved out of the treaty. The Barbados – Canada Income Tax Treaty (“Treaty”) came into force in 1980. The fact that the Treaty was so old meant that an IBC had to rely on the provisions of Regulation 5907(11.2) (c) of the Canadian Income Tax Act (“ITA”) in order to qualify as a foreign affiliate. (Regulation 5907(11.2)(c) provides that where a foreign entity has been carved out of a treaty signed prior to 1994 and where such treaty has not been amended since but where such foreign entity would qualify as a resident under the treaty in force then such foreign entity is accorded foreign affiliate status for the purposes of the ITA. The IBC has always been an attractive entity for tax planning as it is subject to a maximum tax rate in Barbados of 2.5%. Furthermore no withholding tax is levied on dividends and interest payments made by an IBC to another IBC or to a non-resident of Barbados. The article can be found here.
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