CANADA: O.K. to Buy U.S.

• Share

A sore point in Canadian-U.S. relations in recent years has been the reluctance of U.S. firms to let Canadian investors buy stock in their profitable Canadian subsidiaries. Largely responsible for the aggravation was a kink in the tax agreements between the two countries. A Canadian subsidiary that was 95% U.S.-owned paid only a 5% tax on the dividends it remitted to the parent company in the U.S. If the proportion of U.S. ownership dropped below 95%, the dividend tax rose to 15%. Rather than have dividend taxes tripled, U.S. companies shied away from selling stock to Canadians.

Last week the U.S. and Canada moved to straighten out the legal kink. U.S. Ambassador Livingston Merchant and Finance Minister Walter Harris signed a treaty in Ottawa lowering the 95% requirement on foreign ownership to 51%. When the treaty is ratified by Parliament and Congress, probably at their next sessions, U.S. firms in Canada will be permitted to sell up to 49% of their stock in the country where they do business and still qualify for the low 5% dividend tax rate. Canadians will then be able—and probably will be urged—to make a tenfold increase in their investment in U.S. subsidiaries in Canada.