US LLC is entitled to treaty relief under the Canada-US Tax Treaty

In TD Securities (USA) LLC v. Her Majesty The Queen, the Tax Court of Canada held that a single member US LLC was a US resident for the purposes of the Canada-US Tax Treaty.  The decision was issued by Patrick Boyle, T.C.J., on April 8, 2010. The decision overrides the long-standing position adopted by the Canada-Revenue Agency that a US LLC is not resident in the U.S. for the purposes of the Canada-US tax treaty, because its income is not subject to the most comprehensive form of taxation in the U.S. at the entity level.

The issue before the court was whether a US LLC owned by another US corporation was entitled to branch tax relief in Article X (Dividends) in the Canada-US Tax Treaty.

Given that this result is consistent with Article IV(4) of the Canada-US Tax Treaty (that provides relief to the income derived by a U.S. resident through a US LLC), it is not clear if the CRA would appeal the decision. 

Read the decision here: US LLC is entitled to relief under the Canada-US Tax Treaty, provided that its income is subject to US tax in the hands of its sole member.

Australia classifies US LP as a partnership, not a corporation

The Australian Taxation Office has issued an interpretative decision dealing with the classification of US Limited Partnerships (LP).   In Interpretative Decision ATO ID 2010/81 , ATO found that a US LP established under state law of Delaware should not be treated as a "company" for the purposes of Art. 10 of Australia-US Tax Treaty but is treated as a partnership.

It is notbable that even if it were a "body corporate", it still would not be entitled to treaty relief under the principles laid out by the Canadian Supreme Court in the Crown Forest case.


Notably, a US partnership is still a "body of persons" and, therefore, a person itself for the purposes of an OECD-based tax treaty.

The following is the text of the decision published by ATO, including the facts and ratio.


Issue
 Is a United States (US) limited partnership (US LP), which is treated as a partnership for US federal tax purposes, a company for the purposes of Article 10 of the Convention between Australia and the US contained in Schedules 2 and 2A to the International Tax Agreements Act 1953 (the US Convention)?
Decision
No. A US LP which is treated as a partnership for US federal tax purposes is not a company for the purposes of Article 10 of the US Convention.
For the purpose of the US Convention, US LP is neither a 'body corporate' nor 'an entity which is treated as a company or body corporate for tax purposes'. Consequently it is not a company for the purposes of Article 10 of the US Convention, and does not qualify for either of the reduced rates for certain cross-border inter-corporate dividends flowing between Australia and the US.
Facts

US LP is a limited partnership established under US (Delaware) state law (the Delaware Revised Uniform Limited Partnership Act (DRULPA)).
A limited partnership under the DRULPA is formed upon the execution and filing of a certificate of limited partnership under section 17-201 of the DRULPA.
As a limited partnership formed under the DRULPA, US LP is an unincorporated hybrid business entity having features commonly associated with both a business carried on by partners as partners and with a company.
The DRULPA does not incorporate a limited partnership, nor does it provide that a limited partnership is a body corporate.
US LP is a separate legal entity, and exists as such until cancellation of the certificate of limited partnership under paragraph 17-201(b) of the DRULPA. Section 15-201 of the DRULPA also provides that US LP has separate legal personality distinct from its partners.
US LP is 'for all purposes a partnership', per section 15-202 of the DRULPA.
US LP is treated as a partnership (and so is fiscally transparent) for US federal tax purposes and not as a taxable unit.
All income derived by US LP is subject to US tax in the hands of its US resident partners. All partners are US resident corporations.
US LP is a 'person' under Article 3(1)(a) of the US Convention.
US LP is a 'resident' of the US for tax treaty purposes within the meaning of Article 4(1)(b)(iii) of the US Convention, because Article 4(1)(b)(iii) treats a US partnership as a US resident for tax treaty purposes to the extent that the income it receives is subject to US income tax either in its hands or in the hands of a partner.
US LP is not treated as a company by the US for tax treaty purposes because it is treated as a partnership for US federal tax purposes.
US LP owns all the shares in an Australian resident company. During the income year the Australian resident company paid an unfranked dividend (not assessable income and not exempt income) to US LP, which was legally and beneficially entitled to that dividend.
US LP would be taxed as a company under Australian domestic law (Division 5A of the Income Tax Assessment Act 1936 , ITAA 1936) if it derived Australian source assessable income. US LP is not a resident of Australia under section 94T of Division 5A of the ITAA 1936.
US LP is not a 'foreign hybrid limited partnership' under section 830-10 of the Income Tax Assessment Act 1997 (ITAA 1997) as it is not a CFC (per paragraph 830-10(1)(e)) of the ITAA 1997.