Q&A: Withholding tax
Question: Four months ago, I purchased 1000 shares of France Telecom on the New York Stock Exchange from within my RRSP. They paid a large dividend and 30% of that money was withheld. It is my understanding that the Canada/U.S. tax treaty is supposed to eliminate this withholding tax. To whom should I write to get the $300 back? Which establishment actually withholds the money and does the money go to the IRS? – Gord R.
Gordon Pape answers: Yes, the Canada-U.S. Tax Treaty exempts U.S.-source dividends paid to RRSPs and RRIFs from the 15% cross-border withholding tax that normally applies. That tax is collected by the government of the country where the corporation paying the dividend is domiciled.
However, France Telecom is not a U.S. company and the fact it trades on a U.S. exchange as an ADR does not change that. The Canada-U.S. Tax Treaty therefore does not apply. The withholding tax is determined by the country where the firm has its headquarters, in this case France.