The internationalization of trade has led to an increase in payments made by Canadian companies to non-residents of Canada, which are most of the time subject to Canadian withholding taxes. Canadian payers must ensure that they withhold the correct percentage of Canadian tax on such payments, as they are liable to the tax authorities for any failures on their part in this regard. In addition, payment recipients will normally want to minimize Canadian withholding taxes and ensure that they have benefitted from the lowest applicable rate. Canadian Tax Treaties In many cases, determining the Canadian withholding tax rate will depend on the application of a tax treaty between Canada and the payment recipient’s country of residence for tax purposes. Canadian tax treaties may reduce the rate of the tax that a Canadian payer must withhold. If interpreting tax treaties was already complex in many situations, it has become even more so with Canada’s adoption of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”). Since January 1, 2020, the MLI generally applies to most tax treaties between Canada and other countries, and its application may result in the non-application of certain provisions of a tax treaty. In such situations, a Canadian payer will be required to withhold the rate provided for in the Income Tax Act (“ITA”), that is, 25%, instead of the reduced rate provided for in the tax treaty between Canada and the recipient’s country of residence for tax purposes, which will typically vary from 0% to 15%, depending on the type of payment involved and the recipient’s tax status. The application of the Multilateral Instrument (MLI) For the time being, applying the Multilateral Instrument (MLI) is tricky for several reasons. First, the MLI does not apply to all of Canada’s tax treaties, nor to all of the articles of the treaties to which it does apply. It thus becomes necessary to first verify whether the MLI applies to a reduction in the withholding rate provided for in a Canadian tax treaty. Second, the Multilateral Instrument (MLI) provides for a general anti-avoidance rule with rather unclear application criteria. When the rule does apply, it may have the effect of denying a benefit provided for in a tax treaty. In short, the MLI is making the application of the ITA’s withholding tax on payments to non-residents more complex. Given that Canadian tax authorities will now apply the Multilateral Instrument (MLI), Canadian taxpayers should exercise caution and obtain proper advice before applying a rate less than the ITA’s 25% rate. Our taxation team is available to assist you and answer your questions regarding the application of the Multilateral Instrument (MLI) to payments made to non-residents.
Michaël Pageau Senior Associate
- Québec, 2016
Michaël Pageau is a member of the Business Law group and specializes in tax law. His practice covers all aspects of tax law, including corporate reorganizations, domestic and cross-border transactions, tax planning and consumption taxes.
Michaël advises individuals and businesses on both Canadian and international tax matters. He is also solicited in matters involving the application of consumption taxes (GST/HST and QST).
In addition, he assists companies and their employees in setting up and implementing stock option plans. His expertise also extends to personal and corporate income tax.
- “Impacts of legislative changes subsequent to the facts in dispute,” 8th Symposium on Taxation at Université Laval, 2019
- Master in Taxation (M.Fisc.), Université de Sherbrooke, 2018
- Bachelor of Laws (LL.B), Université Laval, 2015
- Certificate in Administration, Université du Québec à Rimouski, 2013
Boards and Professional Affiliations
- Member of the Canadian Tax Foundation (CTF)
- Member of the Association de planification fiscale et financière (APFF)
Following a qualification process, the Ministère des Transports et de la Mobilité durable du Québec (MTMD) issued a call for tenders in 2022 for the construction of the new Île-aux-Tourtes bridge pursuant to the project delivery method known as design-build-finance (DBF). Since this was a DBF, the financing of this project had to be included in the proposals made by the selected candidates. Lavery represented the successful consortium made up of Dragados Canada Inc., Roxboro Excavation Inc. and Construction Demathieu & Bard Inc. Our role required expertise in the following areas: (a) Governance and corporate law (b) Project financing (banking and securities) (c) Public procurement (d) Construction law (e) Commercial agreements (f) Taxation Lavery represented the consortium from the call for proposals to the financial close, including the drafting phase leading up to the awarding of the contract to the consortium. The financing was the most complex part of this transaction. Under the hybrid approach retained for that project, a major credit facility to be granted by a bank syndicate had to be set up, as well the private placement of two tranches of bonds. This involved adjusting the rights and obligations of creditors on both sides within a sophisticated intercreditor agreement. The financing also required parent company guarantees, including from French and Spanish corporations, which required us to find common ground to accommodate the typical requirements of a North American financing and the specific corporate and commercial features applicable in France and Spain. To meet this challenge, we put together a multidisciplinary team, divided up the work in accordance with our professionals’ diverse expertises, and dedicated a team member exclusively to interactions with the MTMD, its lawyers and the issuers of performance bonds typical for this kind of projects. Sound project management practices were essential to the success of this team effort. It is a privilege for Lavery to have participated in this essential project allowing the people of Quebec to obtain a new bridge linking the regions of Montérégie and Montréal. The Lavery team was led by Josianne Beaudry, Nicolas Gagnon, Édith Jacques, David Tournier and André Vautour, and included Véronik Bonneville-Pesant, Katerina Kostopoulos, Jean-François Maurice, Joseph Gualdieri, Siddhartha Borissov-Beausoleil, Alexandre Turcotte, Luc Pariseau, Charles Hugo Gagné, Mickaël Pageau, Jean-Vincent Prévost-Bérubé and Yohann Lévy.
On June 13, 2022, Resonetics announced the purchase of the entirety of the shares of Agile MV, a Montréal-based medical device design and development contract manufacturing company. The transaction was motivated by the quality of expertise that Agile MV's team of engineers, scientists, and technicians possess throughout the entire production cycle, from initial concept consolidation to mass production. Our partner, Audrey Gibeault, had the privilege of representing the company in this major transaction that involved complex tax planning, among other things. In business law, this transaction was led by our partner Étienne Brassard. Ms. Gibeault and Mr. Étienne Brassard were mainly assisted in this transaction by Gabrielle Ahélo. They were assisted by Luc Pariseau, Sonia Guérin, France Camille De Mers, Brittany Carson, Éric Gélinas, André Vautour, Michael Pageau, Maxime Chabot and Charles-Hugo Gagné. —Agile MV is a Quebec-based medical device design and development contract manufacturing company. It specializes in the development of minimally invasive diagnostic and therapeutic medical devices in the following areas: cardiac electrophysiology, interventional cardiology, interventional radiology, interventional pulmonology, interventional gastroenterology, interventional pain management and interventional neurology.Resonetics specializes in advanced engineering and manufacturing solutions for the life sciences industry, laser cutting, centerless grinding, nitinol processing, thin-wall stainless steel and precious metal tubing, photochemical machining, microfluidics, sensor solutions and medical energy.