Will my holding company still qualify for treaty benefits?
That depends on whether it has a reason to exist beyond the tax rate, because limitation-on-benefits provisions and principal-purpose tests are written to find the entities that do not. They ask two things: whether the entity has substance in the jurisdiction, meaning people, decisions and function, and whether obtaining the benefit was a main purpose of the arrangement. Both are answered from the record made at the time the structure was put in place and operated, not from an explanation assembled once a question is asked. So the practical test is what your files show about why the company exists and what it does.
What counts as substance for a holding company?
People, decisions and function, located in the jurisdiction the entity claims to be in. That means someone with authority who actually takes the decisions, records generated where the entity sits, and a function it performs that would need doing whether or not a treaty existed. A registered address, a nominee signing documents prepared elsewhere and an annual set of accounts are not substance; they are administration. The important part is documentation made at the same time as the decisions. Substance reconstructed after an enquiry opens tends to confirm the concern rather than answer it.
Can a holding company with no employees claim the treaty rate?
It is the weakest position to be in, because the tests ask where the people and the decisions are. Having no staff does not automatically end the claim, since some holding functions are genuinely thin, and what matters is that the decisions taken are real, taken by someone with authority, and taken in that jurisdiction. But with nobody there, every decision has to be traceable to a person who is, and the record has to have been made at the time. If the decisions are in fact taken elsewhere, the entity residence and its treaty claim are both exposed.
What is a principal purpose test in plain terms?
It asks whether obtaining the treaty benefit was one of the main purposes of the arrangement. Not the only purpose, and not necessarily the largest one, because a main purpose is enough. That is why an explanation built around tax saving alone fails on its own terms. The answer comes from the record: what was written when the structure was chosen, what alternatives were considered, and what commercial function the entity was given. The provision sits alongside limitation-on-benefits wording, which tests substance and qualification more mechanically, and a structure usually needs to survive both.
Do board meetings need to happen where the holding company is?
Where decisions are taken is one of the things both sets of tests look at, so it matters, and papering it is not the same as doing it. Minutes recording a meeting in one country for a decision actually made in another are worse than no minutes, because they document the problem. The practical approach is to identify which decisions the entity genuinely has to make, place the authority to make them with people in that jurisdiction, and record them as they happen. That record is the substance evidence, and it only exists if it is made at the time.
Is a holding company we set up years ago still defensible?
Worth testing, because the question being asked has shifted. Structures put in place when a treaty rate was the point now meet provisions written specifically to find entities whose only reason to exist is that rate. A review looks at what the entity does today, who takes its decisions and where, what function it performs in the group, and what the record from the time shows about why it was formed. Where substance is thin, the options are to give the entity real function or to simplify it, and simplification is itself a taxable event that has to be planned rather than executed.
Do I need to report a foreign business I own?
Almost certainly, and on more than one form. Canada requires reporting of foreign affiliates on the T1134; the United States has a family of returns keyed to the entity type and your level of control, and several carry penalties that apply whether or not any tax is owed. These are information returns, so the obligation follows the ownership rather than the profit. See T1134.
Can an accountant in one country file my return in another?
Yes, where they are authorised to represent you with that tax authority and the filing is done electronically. What matters is not where the adviser sits but whether they can lawfully act for you and are competent in both systems — a return prepared with no knowledge of the other country is where the relief gets missed. We file on both sides, from offices in India, the USA, Canada and the UAE. See how we work.
