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Convention between the Government of Canada and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital

E103320 - CTS 2000 No. 22

THE GOVERNMENT OF CANADA AND THE GOVERNMENT OF THE GRAND DUCHY OF LUXEMBOURG desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have agreed as follows:

I. SCOPE OF THE CONVENTION

ARTICLE 1

Persons Covered

This Convention shall apply to persons who are residents of one or both of the Contracting States.

ARTICLE 2

Taxes Covered

  1. The existing taxes to which the Convention shall apply are, in particular:
    1. in the case of Canada:
      the taxes imposed by the Government of Canada under the Income Tax Act, (hereinafter referred to as “Canadian Tax”);
    2. in the case of Luxembourg:
      1. the income tax on individuals;
      2. the corporation tax;
      3. the special tax on directors’ fees;
      4. the capital tax; and
      5. the communal trade tax;
        (hereinafter referred to as “Luxembourg tax”).
  2. 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 any significant changes which have been made in their respective taxation laws.

II. DEFINITIONS

ARTICLE 3

General Definitions

  1. For the purposes of this Convention, unless the context otherwise requires:
    1. the term “Canada” used in a geographical sense, means the territory of Canada, including:
      1. any area beyond the territorial sea of Canada which, in accordance with international law and the laws of Canada, is an area within which Canada may exercise rights with respect to the seabed and subsoil and their natural resources;
      2. the sea and airspace above every area referred to in subparagraph (i) in respect of any activity carried on in connection with the exploration for or the exploitation of the natural resources referred to therein;
    2. the term “Luxembourg” used in a geographical sense, means the territory of the Grand Duchy of Luxembourg;
    3. the terms “a Contracting State” and “the other Contracting State” mean, as the context requires, Canada or Luxembourg;
    4. the terms “person” includes an individual, an estate, a trust, a company, a partnership and any other body of persons;
    5. the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes;
    6. the term “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;
    7. the term "competent authority” means:
      1. in the case of Canada, the Minister of National Revenue or the Minister’s authorized representative,
      2. in the case of Luxembourg, the Minister of Finance or the Minister’s authorized representative;
    8. the term “national” means:
      1. any individual possessing the nationality of a Contracting State;
      2. any legal person, partnership or association deriving its status as such from the laws in force in a contracting State.
  2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.

ARTICLE 4

Resident

  1. For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of that person’s domicile, residence, place of management or any other criterion of a similar nature. This term also includes a Contracting State or a political subdivision or local authority thereof or any agency or instrumentality of any such State, subdivision or authority. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State.
  2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then the individual’s status shall be determined as follows:
    1. the individual shall be deemed to be a resident only of the State in which the individual has a permanent home available; if the individual has a permanent home available in both States, the individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);
    2. if the State in which the individual’s centre of vital interests is situated cannot be determined, or if there is not a permanent home available to the individual in either State, the individual shall be deemed to be a resident only of the State in which the individual has an habitual abode;
    3. if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;
    4. if the individual 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 by mutual agreement endeavour to settle the question. In the absence of such agreement, such person shall not be entitled to claim any relief or exemption from tax provided by the Convention.

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:
    1. a place of management;
    2. a branch;
    3. an office;
    4. a factory;
    5. a workshop;
    6. a mine, an oil or gas well, a quarry or any other place relating to the exploration for or the exploitation of natural resources.
  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:
    1. the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;
    2. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;
    3. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
    4. the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or for collecting information, for the enterprise;
    5. 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;
    6. 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.

III. TAXATION OF INCOME

ARTICLE 6

Income from Immovable Property

  1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
  2. For the purposes of this Convention, the term “immovable property” shall have the meaning which it has for the purposes of the relevant tax law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property.
  3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property and to income from the alienation of such property.
  4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

ARTICLE 7

Business Profits

  1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.
  2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment and with all other persons.
  3. In the determination of the profits of a permanent establishment, there shall be allowed those deductible expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses, whether incurred in the State in which the permanent establishment is situated or elsewhere.
  4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.
  5. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.
  6. Where profits include items of income which are dealt with separately in other Articles of the Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

ARTICLE 8

Shipping and Air Transport

  1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.
  2. Notwithstanding the provisions of paragraph 1 and of Article 7, profits derived by an enterprise of a Contracting State from a voyage of a ship where the principal purpose of the voyage is to transport passengers or goods exclusively between places in the other Contracting State may be taxed in that other State.
  3. The provisions of paragraphs 1 and 2 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.
  4. For the purposes of this Article,
    1. the term “profits” includes
      1. gross receipts and revenues derived directly from the operation of ships or aircraft in international traffic, and
      2. interest on sums generated directly from the operation of ships or aircraft in international traffic if that interest is incidental to the operation; and
    2. the term “operation of ships or aircraft in international traffic” by an enterprise, includes
      1. the charter or rental of ships or aircraft,
      2. the rental of containers and related equipment, and
      3. the alienation of ships, aircraft, containers and related equipment

    by that enterprise if that charter, rental or alienation is incidental to the operation by that enterprise of ships or aircraft in international traffic.

ARTICLE 9

Associated Enterprises

  1. Where
    1. 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
    2. 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 income 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 income of that enterprise and taxed accordingly.

  2. Where a Contracting State includes in the income of an enterprise of that State - and taxes accordingly - income on which an enterprise of the other Contracting State has been charged to tax in that other State and the income so included is income which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of tax charged therein on that income. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.
  3. A Contracting State shall not change the income of an enterprise in the circumstances referred to in paragraph 1 after the expiry of the time limits provided in its national laws and, in any case, after five years from the end of the year in which the income which would be subject to such change would, but for the conditions referred to in paragraph 1, have accrued to that enterprise.
  4. The provisions of paragraphs 2 and 3 shall not apply in the case of fraud or wilful default.

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 beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
    1. 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which controls directly or indirectly at least l0 per cent of the voting power in the company paying the dividends;
    2. notwithstanding the provisions of subparagraph (a), 10 per cent of the gross amount of the dividends if the dividends are paid by a non-resident-owned investment corporation that is a resident of Canada to a beneficial owner that is a company (other than a partnership) that is a resident of Luxembourg and that owns at least 25 per cent of the capital of the company paying the dividends; and
    3. 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. Notwithstanding the provisions of paragraph 2, dividends paid by a company that is a resident of Luxembourg shall not be taxable in Luxembourg if the beneficial owner of the dividends is a company that is a resident of Canada and that has had during an uninterrupted period of two years preceding the date of payment of the dividends, a direct shareholding of at least 25 per cent of the voting stock of the company paying the dividends. This provision only applies to dividends attributable to that part of the shareholding that has been owned without interruption by the beneficial owner during such two-year period. Furthermore, the provisions of this paragraph shall only apply if the distributed dividend is derived from the active conduct of a trade or business in Luxembourg (other than the business of making or managing investments, unless such business is carried on by a banking or insurance company) and if such dividends are exempt in Canada.
  4. Notwithstanding the provisions of paragraph 2, dividends arising in a Contracting State and paid to an organization that was constituted and is operated in the other Contracting State exclusively to administer or provide benefits under one or more pension, retirement or other employee benefits plans shall be exempt from tax in the first mentioned State provided that:
    1. the organization is the effective owner of the shares on which the dividends are paid, holds those shares as an investment and is generally exempt from tax in the other State;
    2. the organization does not own directly or indirectly more than 5 per cent of the capital or 5 per cent of the voting stock of the company paying the dividends; and
    3. the class of shares of the company on which the dividends are paid is regularly traded on an approved stock exchange.
  5. For the purposes of paragraph 4, the term “approved stock exchange” means:
    1. in the case of dividends arising in Canada, a Canadian stock exchange prescribed for the purposes of the Income Tax Act;
    2. in the case of dividends arising in Luxembourg, the Luxembourg Stock Exchange; and
    3. any other stock exchange agreed from letters exchanged between the competent authorities of the Contracting States.
  6. 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 same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.
  7. The provisions of paragraphs 1, 2 and 3 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.
  8. 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.
  9. Notwithstanding any provision in this Convention, Canada may impose on the earnings of a company attributable to permanent establishments in Canada, tax in addition to the tax which would be chargeable on the earnings of a company incorporated in Canada, provided that the rate of such additional tax so imposed shall not exceed 5 per cent. For the purpose of this provision, the term “earnings” means the profits attributable to such permanent establishments in Canada (including gains from the alienation of property forming part of the business property, referred to in paragraph 2 of Article 13, of such permanent establishments) in accordance with Article 7 in a year and previous years after deducting therefrom:
    1. business losses attributable to such permanent establishments (including losses from the alienation of property forming part of the business property of such permanent establishments) in such year and previous years;
    2. all taxes chargeable in Canada on such profits, other than the additional tax referred to herein;
    3. the profits reinvested in Canada, provided that the amount of such deduction shall be determined in accordance with the existing provisions of the law of Canada regarding the computation of the allowance in respect of investment in property in Canada, and any subsequent modification of those provisions which shall not affect the general principle hereof; and
    4. five hundred thousand Canadian dollars ($500,000) less any amount deducted:
      1. by the company, or
      2. by a person related thereto from the same or a similar business as that carried on by the company,

        under this subparagraph (d); for the purposes of this sub-paragraph (d), a company is related to another company if one company directly or indirectly controls the other, or both companies are directly controlled by the same person or persons, or if the two companies deal with each other not at arm’s length.

        The provisions of this paragraph shall also apply with respect to earnings from the alienation of immovable property in Canada by a company carrying on a trade in immovable property without a permanent establishment in Canada but only insofar as these earnings may be taxed in Canada in accordance with the provisions of Article 6 or paragraph 1 of Article 13.

ARTICLE 11

Interest

  1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
  2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.
  3. Notwithstanding the provisions of paragraph 2,
    1. interest arising in a Contracting State and paid in respect of indebtedness of the government of that Contracting State or of a political subdivision or local authority thereof shall, provided that the interest is beneficially owned by a resident of the other Contracting State, be taxable only in that other State;
    2. interest arising in Luxembourg and paid to a resident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export Development Corporation; and
    3. interest arising in a Contracting State and paid to an organization that was constituted and is operated in the other Contracting State exclusively to administer or provide benefits under one or more pension, retirement or other employee benefit plans shall be exempt from tax in the first-mentioned State provided that:
      1. the organization is the beneficial owner of the interest and is generally exempt from tax in the other State, and
      2. the interest is not derived from carrying on a trade or a business or from a related person.
  4. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State if such interest:
    1. is a penalty charge for late payments, or
    2. is paid in connection with the sale on credit of any equipment or merchandise, except where the sale is made between persons not dealing with each other at arm’s length.
  5. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debt of profits, and in particular, income from government securities and income from bonds or debentures, as well as income which is subjected to the same taxation treatment as income from money lent by the laws of the State in which the income arises. However, the term “interest” does not include income dealt with in Article 10.
  6. The provisions of paragraphs 1, 2, 3 and 4 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is 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. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.
  8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

ARTICLE 12

Royalties

  1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
  2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed l0 per cent of the gross amount of the royalties.
  3. Notwithstanding the provisions of paragraph 2,
    1. copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other 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), and
    2. royalties for the use of, or the right to use, computer software or 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)

      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.

  4. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright, patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience, and includes payments of any kind in respect of motion picture films and works on film or videotape or other means of reproduction for use in connection with television.
  5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties 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.
  6. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.
  7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

ARTICLE 13

Capital Gains

  1. Gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State.
  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 a 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 in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
  4. Gains derived by a resident of a Contracting State from the alienation of:
    1. shares (other than shares listed on an approved stock exchange in the other Contracting State) forming part of a substantial interest in the capital stock of a company the value of which shares is derived principally from immovable property situated in that other State; or
    2. an interest in a partnership, trust or estate, the value of which is derived principally from immovable property situated in that other State,
      may be taxed in that other State. For the purposes of this paragraph, the term “immovable property” does not include property (other than rental property) in which the business of the company, partnership, trust or estate was carried on; and a substantial interest exists when the resident and persons related thereto own 10 per cent or more of the shares of any class or the capital stock of a company.
  5. Gains from the alienation of any property, other than that referred to in paragraphs 1 to 4 shall be taxable only in the Contracting State of which the alienator is a resident.
  6. Where a resident of a Contracting State alienates property in the course of a corporate or other organization, reorganization, amalgamation, division or similar transaction and profit, gain or income with respect to such alienation is not recognized for the purpose of taxation in that State, if requested to do so by the person who acquires the property, the competent authority of the other Contracting State may agree, subject to the terms and conditions satisfactory to such competent authority, to defer the recognition of the profit, gain or income with respect to such property for the purpose of taxation in that other State until such time and in such manner as may be stipulated in the agreement.
  7. The provisions of paragraph 5 shall not affect the right of either of the Contracting States to levy, according to its law, a tax on gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned State at any time during the six years immediately preceding the alienation of the property.
  8. Where an individual who ceases to be a resident of a Contracting State, and immediately thereafter becomes a resident of the other Contracting State, is treated for the purposes of taxation in the first-mentioned State as having alienated a property and is taxed in that State by reason thereof, the individual may elect to be treated for purposes of taxation in the other State as if the individual had, immediately before becoming a resident of that State, sold and repurchased the property for an amount equal to its fair market value at that time. However, this provision shall not apply to property any gain from which arising, immediately before the individual became a resident of that other State, may be taxed in that other State nor to immovable property situated in a third State.

ARTICLE 14

Independent Personal Services

  1. Income derived by an individual who is a resident of a Contracting State in respect of professional or similar services of an independent character shall be taxable only in that State unless the individual has a fixed base regularly available in the other Contracting State for the purpose of performing the services. If the individual has or had such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base.
  2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

ARTICLE 15

Dependent Personal Services

  1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
  2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
    1. the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and
    2. the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and
    3. the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.
  3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised abroad a ship or aircraft operated by an enterprise of a Contracting State in international traffic may be taxed in that State.

ARTICLE 16

Directors' Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in that resident’s capacity as a member of the board of directors of a company which is a resident of the other Contracting State, may be taxed in that other State.

ARTICLE 17

Artistes and Sportspersons

  1. Notwithstanding the provisions of Articles 7, 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 sportsperson, from that resident’s 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 sportsperson in that individual’s capacity as such accrues not to the entertainer or sportsperson personally 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 sportsperson are exercised.
  3. The provisions of paragraph 2 shall not apply if this is established that neither the entertainer or the sportsperson nor persons related thereto, participate directly or indirectly in the profits of the person referred to in that paragraph.

ARTICLE 18

Pensions and Annuities

  1. Pensions and annuities arising in a Contacting State and paid to a resident of the other Contracting State may be taxed in that other State.
  2. However, such pensions and annuities may also be taxed in the State in which they arise and according to the law of that State.
  3. Notwithstanding anything in this Convention:
    1. pensions paid by, or out of funds created by, the Luxembourg State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in Luxembourg;
    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 war) arising in Canada shall not be taxable in Luxembourg so long as they are not subject to Canadian Tax;
    3. benefits and annuities received from Luxembourg from the accident insurance association and from the office of war damage as compensation for bodily injury shall not be taxable in Canada so long as they are not subject to Luxembourg tax;
    4. alimony and other similar payments arising in a Contracting State and paid to a resident of the other Contracting State who is subject to tax therein in respect thereof, shall be taxable only in that other State but the amount taxable in that other State shall not exceed the amount that would be taxable in the first-mentioned State if the recipient were a resident thereof;
    5. benefits under the social security legislation in a Contracting State paid to a resident of the other Contracting State shall be taxable only in the first-mentioned State.

ARTICLE 19

Government Service

  1.  
    1. Salaries, wages and other similar remuneration, other than a pension, paid by a Contacting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.
    2. However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:
      1. is a national of that State; or
      2. did not become a resident of that State solely for the purpose of rendering the services.
  2. The provisions of paragraph 1 shall not apply to salaries, wages and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

ARTICLE 20

Students

Payments which a student or business apprentice who is, or was immediately before visiting a Contracting State, a resident of the other Contracting Stage and who is present in the first-mentioned State solely for the purpose of that individual’s education or training receives for the purpose of that individual’s maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.

ARTICLE 21

Other Income

  1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State except that if such income is derived from sources within the other Contracting State, it may also be taxed in that other State. However, in the case of income from an estate or trust, other than a trust to which contributions were deductible, the tax so charged shall, provided that the income is taxable in the Contracting State in which the recipient resides, not exceed 15 per cent of the gross amount of the income.
  2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is 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.

IV. TAXATION OF CAPITAL

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 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.
  3. Capital represented by ships and aircraft operated by an enterprise of a Contracting State in international traffic and by movable property pertaining to the operation of such ships and aircraft, shall be taxable only in that State.
  4. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

V. METHODS FOR PREVENTION OF DOUBLE TAXATION

ARTICLE 23

Elimination of Double Taxation

  1. In the case of Canada, double taxation shall be avoided as follows:
    1. subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions - which shall not affect the general principle hereof - and unless a greater deduction of relief is provided under the laws of Canada, tax payable in Luxembourg on profits, income or gains arising in Luxembourg shall be deducted from any Canadian tax payable in respect of such profits, income or gains;
    2. 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. In the case of Luxembourg, double taxation shall be avoided as follows:
    1. where a resident of Luxembourg derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in Canada, Luxembourg shall, subject to the provisions of subparagraph (b), exempt such income or capital from tax, but may, in calculating the amount of tax on the remaining income or capital of such resident, apply the rate of tax which would have been applicable if the exempted income or capital had not been so exempted;
    2. where a resident of Luxembourg derives income which, in accordance with the provisions of Articles 10, 11, 12, 13 paragraphs 4 and 7, 18 and 21, may be taxed in Canada, Luxembourg shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in Canada. Such deduction shall not, however, exceed that part of the income tax, as computed before the deduction is given, which is attributable to the income derived from Canada;
    3. notwithstanding subparagraph (b), dividends distributed by a company resident in Canada, and subject in that State to the corporation tax, to a company resident in Luxembourg which has directly controlled at least l0 per cent of the capital of the first-mentioned company since the beginning of its fiscal year shall be subject to the tax treatment provided for under subparagraph (a). The shares in the Canadian company referred to above shall, under the same conditions, be exempt from the Luxembourg capital tax.
  3. For the purposes of this Article, profits, income or gains of a resident of a Contracting State shall be deemed to arise from sources in the other Contracting State if they may be taxed in that other Contracting State in accordance with this Convention.

VI. SPECIAL PROVISIONS

ARTICLE 24

Non-Discrimination

  1. Nationals of a Contracting State shall not be subjected 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 nationals of that other State in the same circumstances are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to individuals who are not residents of one or both of the Contracting States.
  2. The taxation of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities. This provision shall not be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.
  3. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of a third State, are or may be subjected.
  4. In this Article, the term “taxation” means taxes which are the subject of this Convention.

ARTICLE 25

Mutual Agreement Procedure

  1. Where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of this Convention, that person may, irrespective of the remedies provided by the domestic law of those States, address to the competent authority of the Contracting State of which that person is a resident or, if that person’s case comes under paragraph 1 of Article 24, to that of the Contracting State of which that person is a national, an application in writing stating the grounds for claiming the revision of such taxation. To be admissible, the said application must be submitted within two years from the first notification of the action which gives rise to taxation not in accordance with the Convention.
  2. The competent authority referred to in paragraph 1 shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.
  3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.
  4. In particular, the competent authorities of the Contracting States may consult together to endeavour to agree:
    1. to the same attribution of profits to an enterprise of a Contracting State and to its permanent establishment situated in the other Contracting State;
    2. to the same allocation of profits between associated enterprises as provided for in Article 9;
    3. to the method of avoiding double taxation in the case of an estate or trust.
  5. The competent authorities of the Contracting States may communicate with each other directly for the purpose of applying the provisions of the Convention.

ARTICLE 26

Exchange of Information

  1. The competent authorities of the Contracting States shall exchange such information as is relevant 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 thereunder 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 or prosecution 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:
    1. to carry out administrative measures at variance with the laws or the administrative practice of that or of the other Contracting State;
    2. 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;
    3. 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).
  3. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall endeavour to obtain the information to which the request relates in the same way as if its own taxation were involved even though the other State does not, at that time, need such information. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall endeavour to provide information under this Article in the form requested, such as depositions of witnesses and copies of unedited original documents (including books, papers, statements, records, accounts or writings), to the same extent such information can be obtained under the laws and administrative practices of that other State with respect to its own taxes.

ARTICLE 27

Members of Diplomatic Missions and Consular Posts

  1. Nothing in this Convention shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.
  2. Notwithstanding Article 4, an individual who is a member of a diplomatic mission, consular post or permanent mission of a Contracting State which is situated in the other Contracting State or in a third State shall be deemed for the purposes of the Convention to be a resident of the sending State if that individual is liable in the sending State to the same obligations in relation to tax on total income as are residents of that sending State.
  3. The Convention shall not apply to International Organizations, to organs or officials thereof and to persons who are members of a diplomatic mission, consular post or permanent mission of a third State or group of States, being present in a Contracting State and who are not liable in either Contracting State to the same obligations in relation to tax on their total income as are residents thereof.

ARTICLE 28

Miscellaneous Rules

  1. The provisions of this Convention shall not be construed to restrict in any manner any exemption, allowance, credit or other deduction now or hereafter accorded by the laws of a Contracting State in the determination of the tax imposed by that State.
  2. Nothing in the Convention shall be construed as preventing a Contracting State from imposing a tax on amounts included in the income of a resident of that State with respect to a partnership, trust, or controlled foreign affiliate, in which that resident has an interest.
  3. The Convention shall not apply to holding companies within the meaning of the special Luxembourg laws (currently the Act of July 31, 1929 and the Grand Duchy Order of December 17, 1938) or any other similar law enacted in Luxembourg after the signature of the Convention, nor to companies subjected to similar fiscal laws in Luxembourg. It shall not apply either to income derived by a resident of Canada from such holding companies nor to shares or other rights in the capital of such companies owned by such person.
  4. For the purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that, notwithstanding that paragraph, any dispute between them as to whether a measure falls within the scope of this Convention may be brought before the Council for Trade in Services, as provided by that paragraph, only with the consent of both Contracting States. Any doubt as to the interpretation of this paragraph shall resolved under paragraph 3 of Article 25 or, falling agreement under that procedure, pursuant to any other procedure agreed to by both Contracting States.

VII. FINAL PROVISIONS

ARTICLE 29

Entry into Force

  1. This Convention shall be ratified and the instruments of ratification shall be exchanged as soon as possible.
  2. The Convention shall enter into force upon the exchange of instruments of ratification and its provisions shall have effect:
    1. in respect of tax withheld at the source on amounts paid or credited to non-residents on or after the first day of January in the calendar year next following that in which the exchange of instruments of ratification takes place; and
    2. in respect of other taxes for taxation years beginning on or after the first day of January in the calendar year next following that in which the exchange of instruments of ratification takes place.
  3. The provisions of the Convention between Canada and the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital signed at Luxembourg on the 17th day of January, 1989, shall cease to have effect with respect to taxes to which this Convention applies in accordance with the provisions of paragraph 2.

ARTICLE 30

Termination

This Convention shall continue in effect indefinitely but either Contracting State may, on or before June 30 in any calendar year after the year of the exchange of instruments of ratification, give to the other Contracting State a notice of termination in writing through diplomatic channels. In such event, the Convention shall cease to have effect:

  1. in respect of tax withheld at the source on amounts paid or credited to non-residents on or after the first day of January in the calendar year next following that in which the notice is given; and
  2. in respect of other taxes for taxation years beginning on or after the first day of January in the calendar year next following that in which the notice is given.

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

DONE in duplicate at Luxemburg, this 10th day of September, 1999, in the English and French languages, each version being equally authentic.

FOR THE GOVERNMENT OF CANADA
Paul Desbiens

FOR THE GOVERNMENT OF THE GRAND DUCHY OF LUXEMBOURG
Lydie Polfer