The tax convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital between the French government and that of Canada was signed on May 2, 1975 and was amended in 1987, 1995 and 2010 (the " Convention ").
The Convention provides specific provisions for companies and businesses established in Canada but which continue to have links with France.
The taxes covered by the Tax Convention are:
- income tax including in the case of real estate sales;
- tax on companies registered in France or Canada;
- tax on gift tax (only for France).
We will return point by point to the different sources of income and their taxation.
The concept of permanent establishment
The Tax Convention locates companies through the concept of "permanent establishment", namely a fixed business installation through which a company carries out all or part of its activities: headquarters, branch, office, factory, workshop, etc.
The concept of tax residence
Companies that have their effective place of management in France and whose partners, shareholders or other members are personally liable to tax on their share of profits there under French domestic legislation are tax residents in France.
Income from real estate
Income from a company's real estate and income from the exercise of a liberal profession are taxed respectively in the country where the property is located.
When a French company has shares, units or assets in another company which gives it access to the enjoyment of real estate located in Canada, income from the direct use, rental or use of the right of enjoyment is impossible in Canada..
Profits of a business
The profits of a company that is a tax resident of France are taxable only in France, unless the company carries out its activities in Canada through a permanent establishment located there. In this case, the company's profits would be taxable in Canada.
When a French company carries out its activity in Canada through a permanent establishment, the profits made by the permanent establishment are taxable in France and in Canada.
Maritime and air navigation
Profits that a French company derives from the operation of ships or aircraft in international traffic are taxable only in France.
If the company derives its profits from the operation of ships or aircraft used to transport passengers or goods within the same contracting State (France or Canada), the profits will be taxed in that State.
Associated companies
Where a Canadian company and a French company are linked financially or in their commercial relations (where a French company participates directly or indirectly in the management, control or capital of a Canadian company or where the same persons participate directly or indirectly in the management, control or capital of both companies) the profits made by one of the two companies may be included in the profits made by the other company.
Therefore, profits made by a French company, included in those made by a Canadian company, will be taxable in Canada.
Dividends
French companies that have invested in shares or financial securities of Canadian companies and receive dividends from these investments will be taxable in Canada but will also be subject to withholding tax in France of an amount fluctuating between 5 and 15% of the gross amount of the dividends.
When a French company derives profits or income from an activity in Canada, Canada cannot levy any tax on dividends received by the company and cannot levy any tax on undistributed profits.
There is, however, one exception: if the dividends are paid to a Canadian resident or if the dividends are connected to a permanent establishment or a fixed base located in Canada.
Interests
Canadian companies receiving interest from French debts are taxed on this income in Canada.
However, as with dividends, this interest will also be taxable in France (tax which will be limited to 10% of the gross amount of interest), except in certain cases restrictively set out by the Convention
Royalties
All remuneration arising from intellectual and/or industrial property rights (e.g. copyright, patent, trademark, manufacturing process, computer coding, etc.) will be paid in the recipient's country of residence. However, here again, if you are a tax resident in Canada and you receive remuneration from royalties originating in France, you would also be taxable in France, up to a limit of 10% of the gross amount of income.
There are, however, exceptions to this double taxation, which are exhaustively set out in the Convention, including when the royalties arise from copyright, the use or concession of computer software, patents or even cultural cinematographic films.
Capital gains
Companies that hold real estate in France, or shares, units or rights in a company whose assets consist mainly of real estate located in France, see the gains from the sale of these assets or these shares taxable in France.
To learn more about what the Tax Convention provides for individuals, you can refer to the article “Focus on the tax treaty between France and Canada: its impacts for individuals”
