Who counts as the beneficial owner of a dividend?
The person entitled to use and enjoy the income, rather than whoever happens to appear as the recipient. The test looks for an obligation to pass the income on. Someone who receives a dividend and must hand it to another under a contract, a matching arrangement or a practical understanding is a conduit for it and not its beneficial owner, so the treaty rate that would apply to them is not available. Someone who receives it and may keep it, spend it or reinvest it is the beneficial owner, even if they took advice about what to do with it.
Does holding my shares through a broker affect my treaty rate?
It should not, but it changes who has to prove what. A nominee, custodian or broker holding shares on your behalf is not the beneficial owner of the dividends, because it has no entitlement to enjoy them. The rate should follow your position rather than the intermediary's. The difficulty is practical: the payer at the top of the chain sees the intermediary, so the documentation establishing your entitlement has to travel down to whoever actually applies the deduction. Where it does not arrive in time the domestic rate is applied, and the difference has to be recovered afterwards.
Can a company be denied the treaty rate on interest it passes on?
Yes, and this is the classic case. Where a company borrows and on-lends on substantially matching terms, so that the interest it receives is committed to servicing what it owes, it is hard to describe that company as entitled to use and enjoy the interest. The arrangement is examined as a whole: matching amounts, matching timing, and whether the entity carries any real risk or discretion. The conclusion is not driven by the entity being resident in a treaty country. It is driven by whether the income was ever really its own.
Is the legal owner always the beneficial owner for treaty purposes?
No. Legal title and beneficial ownership are separate questions, and the treaty test is deliberately not a test of title. A registered holder can be a nominee. A trustee holds legal title but may be obliged to pay income straight out to a beneficiary. Equally, beneficial ownership does not require the loosest possible arrangement, because an owner who has chosen to commit the income to a use is still its owner. What is examined is entitlement and obligation, which is why the documents that create them are the documents that matter.
Do I prove beneficial ownership to the payer or to the tax authority?
To the payer first, and that is where most of the practical work sits. The rate applied at payment depends on the documentation the payer holds at that moment, and a payer will fall back on the domestic rate where the file does not support the treaty one. A declaration of entitlement to treaty benefits, in the form that particular payer requires, therefore has to be complete and lodged before the payment is made. The authority's own scrutiny, if it comes at all, comes later and looks at the same body of evidence.
Does income received through a trust change who the beneficial owner is?
It can, and the answer turns on the terms of the trust rather than on the word trust. Where a trustee has discretion and the income may be accumulated, the trustee can be the person entitled to enjoy it. Where the deed obliges the trustee to pay income straight out to a named beneficiary, the beneficiary is the stronger candidate. Because a payer has to apply a rate at the moment of payment, the trust terms and the residence of whoever the analysis identifies both need to be established and documented in advance.
Do American citizens living abroad have to pay taxes?
American expats and green card holders need to file US returns for life, and many of them pay little or no US tax once the relief is applied — but the filing is what unlocks the relief, so the two questions have different answers. The exclusion for foreign earned income, the credit for foreign tax already paid and the treaty between the two countries between them usually leave the total at roughly the higher of the two countries' tax rather than the sum. Skip the return and none of it applies. See Americans abroad.
Do Canada and the United States share tax information?
Yes, through more than one channel. The treaty has an exchange-of-information article that supports both routine and on-request exchange. Separately, an intergovernmental agreement has Canadian financial institutions identify US-reportable accounts and report them to the CRA, which passes them to the IRS, with the reverse flow for Canadian residents. Most other country pairs use the Common Reporting Standard for the same purpose. See FATCA reporting.
