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French Guideline on treaty treatment of Canadian mutual funds in securities published

The French Tax Administration published Guideline 14 B-1-06 of 17 January 2006 which provides the list of Canadian mutual funds in securities which benefit from an exemption or a reduction of withholding tax on French dividends and interest on the fraction of such income redistributed to Canadian residents. Details of the Guideline are summarized below.

(a) Background. Art. 29(7)(a) of the France-Canada tax treaty as amended by protocol of 30 November 1995, grants under certain conditions a withholding tax exemption or reduction on French-sourced dividends and interest paid to "[a] mutual fund in securities constituted and established in a Contracting State, not subject to tax in that State ... 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". Guideline 14 B-1-06 lists the qualifying mutual funds in securities and provides for administrative formalities, as agreed by the competent authorities of Canada and France.

(b) Qualifying mutual funds in securities. The qualifying mutual funds in securities benefiting from the withholding tax exemption are:

With respect to interest payments, exemptions are only mentioned if relevant for the International Tax Treaty Expert.

-   mutual fund trusts;
-   pooled fund trusts; and
-   unit trusts

In contrast, mutual fund corporations constituted under the Canadian Capital Corporate Company Act are subject to taxation in Canada on the income received from French companies. The whole of this income (including the fraction redistributed to Canadian residents) is classified as dividends, and is accordingly subject to French withholding tax at the rate of 15% provided by Art. 10 (2)(c) of the treaty.

(c) Conditions of application. The above-mentioned qualifying mutual funds in securities may benefit from the withholding tax exemption or reduction provided that:

-   they are not subject to income tax in Canada. The withholding tax exemption only applies to the fraction of French-source income on which these mutual funds in securities are not liable to tax in Canada and which are redistributed to beneficial owners resident in Canada;
-   the mutual funds in securities must justify that the French-source income is received by the beneficial owners who (i) hold shares in the mutual funds in securities, (ii) are resident in Canada, and (iii) subject to taxation on such income in Canada; and
-   the mutual funds in securities must submit to the paying agent established in France the tax forms 5000A (for dividends) and/or 5002A (for interest), and a certificate from the representative of the mutual funds in securities as provided in the annexes of the Guideline.

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