Income Tax Conventions Implementation Act, 1998 (S.C. 1998, c. 33)

The Government of Canada and the Government of the Republic of Croatia, desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have agreed as follows:

I. Scope of the Agreement

Article 1
Persons Covered

This Agreement shall apply to persons who are residents of one or both of the Contracting States.

Article 2
Taxes Covered

• 1 This Agreement shall apply to taxes on income and on capital imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.

• 2 There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains from the alienation of movable or immovable property, as well as taxes on capital appreciation.

• 3 The existing taxes to which the Agreement shall apply are in particular:

  • (a) in the case of Canada: the taxes imposed by the Government of Canada under the Income Tax Act, (hereinafter referred to as “Canadian tax”);

  • (b) in the case of Croatia:

    • (i) the profit tax; and

    • (ii) the income tax;

    (hereinafter referred to as “Croatian tax”).

• 4 The Agreement shall apply also to any identical or substantially similar taxes and to taxes on capital which are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes which have been made in their respective taxation laws.

II. Definitions

Article 3
General Definition

• 1 For the purposes of this Agreement, unless the context otherwise requires:

  • (a) the term “Canada”, used in a geographical sense, means the territory of Canada, including:

    • (i) any area beyond the territorial sea of Canada which, in accordance with international law and the laws of Canada, is an area within which Canada may exercise rights with respect to the seabed and subsoil and their natural resources;

    • (ii) the sea and airspace above every area referred to in subparagraph (i) in respect of any activity carried on in connection with the exploration for or the exploitation of the natural resources referred to therein;

  • (b) the term “Croatia”, used in a geographical sense, means the territory of the Republic of Croatia within its internationally recognized borders, as well as any area beyond the territorial waters of the Republic of Croatia in which, in accordance with international law and the laws of the Republic of Croatia, the Republic of Croatia exercises its sovereign rights and jurisdiction;

  • (c) the terms “a Contracting State” and “the other Contracting State” mean, as the context requires, Canada or Croatia;

  • (d) the term “person” includes an individual, an estate, a trust, a company, a partnership and any other body of persons;

  • (e) the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes;

  • (f) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

  • (g) the term “competent authority” means:

    • (i) in the case of Canada, the Minister of National Revenue or the Minister’s authorized representative;

    • (ii) in the case of Croatia, the Minister of Finance or the Minister’s authorized representative;

  • (h) the term “national” means:

    • (i) any individual possessing the citizenship of a Contracting State;

    • (ii) any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State;

  • (i) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise of a Contracting State except when the ship or aircraft is operated solely between places in the other Contracting State.

• 2 As regards the application of the Agreement at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Agreement applies.

Article 4
Resident

• 1 For the purposes of this Agreement, the term “resident of a Contracting State” means:

  • (a) any person who, under the laws of that State, is liable to tax therein by reason of the person’s domicile, residence, place of management or any other criterion of a similar nature; this term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein;

  • (b) the Government of that State or a political subdivision or local authority thereof.

• 2 Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then the individual’s status shall be determined as follows:

  • (a) the individual shall be deemed to be a resident only of the State in which the individual has a permanent home available; if the individual has a permanent home available in both States, the individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

  • (b) if the State in which the individual’s centre of vital interests cannot be determined, or if there is not a permanent home available to the individual in either State, the individual shall be deemed to be a resident only of the State in which the individual has an habitual abode;

  • (c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

  • (d) if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

• 3 Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then its status shall be determined as follows:

  • (a) it shall be deemed to be a resident only of the State in which it is incorporated or otherwise constituted;

  • (b) if it is not incorporated or otherwise constituted in either of the States, it shall be deemed to be a resident only of the State in which its place of effective management is situated.

• 4 Where by reason of the provisions of paragraph 1 a person other than an individual or a company is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of the Agreement to such person. In the absence of such agreement, such person shall not be entitled to claim any relief or exemption from tax provided by the Agreement.

Article 5
Permanent Establishment

• 1 For the purposes of this Agreement, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

• 2 The term “permanent establishment” includes especially:

  • (a) a place of management;

  • (b) a branch;

  • (c) an office;

  • (d) a factory;

  • (e) a workshop; and

  • (f) a mine, an oil or gas well, a quarry or any other place relating to the exploration for or the exploitation of natural resources.

• 3 The term “permanent establishment” likewise encompasses a building site or construction, installation or assembly project or supervisory activities in connection therewith, but only where they last more than twelve months.

• 4 Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

  • (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

  • (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

  • (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

  • (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

  • (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

  • (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e) provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

• 5 Notwithstanding the provisions of paragraphs 1 and 2, where a person (other than an agent of an independent status to whom paragraph 6 applies) is acting on behalf of an enterprise and has, and habitually exercises in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

• 6 An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

• 7 The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

III. Taxation of Income

Article 6
Income from Immovable Property

• 1 Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

• 2 For the purposes of this Agreement, the term “immovable property” shall have the meaning which it has for the purposes of the relevant tax law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships and aircraft shall not be regarded as immovable property.

• 3 The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property and to income from the alienation of such property.

• 4 The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7
Business Profits

• 1 The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

• 2 Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment and with all other persons.

• 3 In the determination of the profits of a permanent establishment, there shall be allowed those expenses that are deductible under the laws of the Contracting State in which the permanent establishment is situated and that are incurred for the purposes of that permanent establishment including executive and general administrative expenses, whether incurred in the State in which the permanent establishment is situated or elsewhere.

• 4 No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

• 5 For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• 6 Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8
Shipping and Air Transport

• 1 Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

• 2 Notwithstanding the provisions of paragraph 1 and of Article 7, profits derived by an enterprise of a Contracting State from a voyage of a ship or aircraft where the principal purpose of the voyage is to transport passengers or property solely between places in the other Contracting State may be taxed in that other State.

• 3 The provisions of paragraphs 1 and 2 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

• 4 For the purposes of this Article,

  • (a) the term “profits” includes interest on sums generated directly from the operation of ships or aircraft in international traffic provided that such interest is incidental to the operation; and

  • (b) the term “operation of ships or aircraft in international traffic” by an enterprise, includes:

    • (i) the charter or rental of ships or aircraft,

    • (ii) the rental of containers and related equipment, and

    • (iii) the alienation of ships, aircraft, containers and related equipment

    by that enterprise provided that such charter, rental or alienation is incidental to the operation by that enterprise of ships or aircraft in international traffic.

Article 9
Associated Enterprises

Where:

• (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

• (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, has not so accrued, may be included in the profits of that enterprise and taxed accordingly.

Article 10
Dividends

• 1 Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

• 2 However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

  • (a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company that either controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends or holds directly at least 25 per cent of the capital of the company paying the dividends;

  • (b) notwithstanding the provisions of subparagraph (a), in the case of dividends paid by a non-resident-owned investment corporation that is a resident of Canada, and in all other cases, 15 per cent of the gross amount of the dividends.

  The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

• 3 The term “dividends” as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

• 4 The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5 Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

• 6 Notwithstanding any provision in this Agreement, Canada may impose on the earnings of a company attributable to permanent establishments in Canada, or on the alienation of immovable property situated in Canada by a company carrying on a trade in immovable property, tax in addition to the tax which would be chargeable on the earnings of a company that is a resident of Canada, provided that the rate of such additional tax so imposed shall not exceed 5 per cent of the amount of such earnings which have not been subjected to such additional tax in previous taxation years. For the purpose of this provision, the term “earnings” means:

  • (a) the earnings attributable to the alienation of such immovable property situated in Canada as may be taxed by Canada under the provisions of Article 6 or of paragraph 1 of Article 13, and

  • (b) the profits attributable to such permanent establishments in Canada (including gains from the alienation of property forming part of the business property, referred to in paragraph 2 of Article 13, of such permanent establishments) in accordance with Article 7 in a year and previous years after deducting therefrom:

    • (i) business losses attributable to such permanent establishments (including losses from the alienation of property forming part of the business property of such permanent establishments) in such year and previous years,

    • (ii) all taxes chargeable in Canada on such profits, other than the additional tax referred to herein,

    • (iii) the profits reinvested in Canada, provided that the amount of such deduction shall be determined in accordance with the provisions of the law of Canada, as they may be amended from time to time without changing the general principle hereof, regarding the computation of the allowance in respect of investment in property in Canada, and

    • (iv) five hundred thousand Canadian dollars ($500,000) or its equivalent in the currency of the Republic of Croatia, less any amount deducted

      • (A) by the company, or

      • (B) by a person related thereto from the same or a similar business as that carried on by the company

      under this clause.

Article 11
Interest

• 1 Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2 However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

• 3 The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income which is subjected to the same taxation treatment as income from money lent by the laws of the State in which the income arises. However, the term “interest” does not include income dealt with in Article 8 or Article 10. Penalty charges for late payment shall not be regarded as interest for the purposes of this Article.

• 4 The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5 Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 6 Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

Article 12
Royalties

• 1 Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2 However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.

• 3 The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematographic films, or films, tapes or other means of reproduction for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience (know-how).

• 4 The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

• 5 Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether the payer is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

• 6 Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

Article 13
Capital Gains

• 1 Gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State.

• 2 Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base may be taxed in that other State.

• 3 Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.

• 4 Gains derived by a resident of a Contracting State from the alienation of:

  • (a) shares (other than shares listed on an approved stock exchange in the other Contracting State) forming part of a substantial interest in the capital stock of a company the value of which shares is derived principally from immovable property situated in the other Contracting State; or

  • (b) a substantial interest in a partnership, trust or estate the value of which is derived principally from immovable property situated in the other Contracting State,

  may be taxed in that other State. For the purposes of this paragraph, the term “immovable property” includes the shares of a company referred to in subparagraph (a) or an interest in a partnership, trust or estate referred to in subparagraph (b) but does not include any property, other than rental property, in which the business of the company, partnership, trust or estate is carried on.

• 5 Gains from the alienation of any property, other than that referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the Contracting State of which the alienator is a resident.

• 6 The provisions of paragraph 5 shall not affect the right of a Contracting State to levy, according to its law, a tax on gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned State at any time during the six years immediately preceding the alienation of the property unless the property was never owned by the individual while such individual was a resident of the first-mentioned State.

Article 14
Independent Personal Services

• 1 Income derived by an individual who is a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State:

  • (a) if the individual has a fixed base regularly available in the other Contracting State for the purpose of performing the individual’s activities; in such case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or

  • (b) if the individual’s stay in the other Contracting State is for a period or periods exceeding in the aggregate 183 days in any twelve month period commencing or ending in the calendar year concerned; in such case, only so much of the income as is derived from the individual’s activities performed in that other State may be taxed in that other State.

• 2 The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15
Dependent Personal Services

• 1 Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

• 2 Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

  • (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the calendar year concerned, and

  • (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

  • (c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

• 3 Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State may be taxed in that State.

Article 16
Directors’ Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in that resident’s capacity as a member of the board of directors or a similar organ of a company which is a resident of the other Contracting State, may be taxed in that other State.

Article 17
Artistes and Sportspersons

• 1 Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.

• 2 Where income in respect of personal activities exercised by an entertainer or a sportsperson in that individual’s capacity as such accrues not to the entertainer or sportsperson personally but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

Article 18
Pensions and Annuities

• 1 Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

• 2 Pensions arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise and according to the law of that State but of the total amount of such pensions paid in any calendar year to a resident of the other Contracting State, the first-mentioned State shall exempt from tax twelve thousand Canadian dollars or the equivalent amount in Croatian currency. However, in the case of periodic pension payments the tax so charged shall not exceed 15 per cent of the gross amount of such payments in the calendar year concerned in excess of twelve thousand Canadian dollars or its equivalent in Croatian currency.

  The competent authorities of the Contracting States may, if necessary, agree to modify the above-mentioned amount as a result of monetary or economic developments. For the purposes of this paragraph, the term “pensions” does not include benefits under the social security legislation in a Contracting State.

• 3 Annuities arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise and according to the law of that State, but the tax so charged shall not exceed 10 per cent of the portion thereof that is subject to tax in that State. However, this limitation does not apply to lump-sum payments arising on the surrender, cancellation, redemption, sale or other alienation of an annuity, or to payments of any kind under an annuity contract the cost of which was deductible, in whole or in part, in computing the income of any person who acquired the contract.

• 4 Notwithstanding anything in this Agreement:

  • (a) war pensions and allowances (including pensions and allowances paid to war veterans or paid as a consequence of damages or injuries suffered as a consequence of a war) arising in a Contracting State and paid to a resident of the other Contracting State shall be exempt from tax in that other State; and

  • (b) benefits under the social security legislation in a Contracting State paid to a resident of the other Contracting State shall be taxable only in the first-mentioned State; and

  • (c) alimony and other similar payments arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State; however, where a deduction or a credit for alimony or a similar payment is not allowed for the purposes of taxation in the Contracting State in which such payment arises, such payment shall not be taxable in the other Contracting State.

Article 19
Government Service

• 1. (a) Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

  • (b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

    • (i) is a national of that State; or

    • (ii) did not become a resident of that State solely for the purpose of rendering the services.

• 2 The provisions of paragraph 1 shall not apply to salaries, wages and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

Article 20
Students

Payments which a student, apprentice or business trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of that individual’s education or training receives for the purpose of that individual’s maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.

Article 21
Other Income

• 1 Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Agreement shall be taxable only in that State.

• 2 However, if such income is derived by a resident of a Contracting State from sources in the other Contracting State, such income may also be taxed in the State in which it arises and according to the law of that State. Where such income is income from an estate or a trust, other than a trust to which contributions were deductible, the tax so charged shall, provided that the income is taxable in the Contracting State in which the beneficial owner is a resident, not exceed 15 per cent of the gross amount of the income.

IV. Taxation of Capital

Article 22
Capital

• 1 Capital represented by immovable property owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.

• 2 Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other State.

• 3 Capital represented by ships and aircraft operated by an enterprise of a Contracting State in international traffic and by movable property pertaining to the operation of such ships and aircraft, shall be taxable only in that State.

• 4 All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

V. Methods for Elimination of Double Taxation

Article 23
Elimination of Double Taxation

• 1 In the case of Canada, double taxation shall be avoided as follows:

  • (a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions — which shall not affect the general principle hereof — and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Croatia on profits, income or gains arising in Croatia shall be deducted from any Canadian tax payable in respect of such profits, income or gains;

  • (b) subject to the existing provisions of the law of Canada regarding the taxation of income from a foreign affiliate and to any subsequent modification of those provisions — which shall not affect the general principle hereof — for the purpose of computing Canadian tax, a company which is a resident of Canada shall be allowed to deduct in computing its taxable income any dividend received by it out of the exempt surplus of a foreign affiliate which is a resident of Croatia;

  • (c) where in accordance with any provision of the Agreement income derived or capital owned by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income or capital, take into account the exempted income or capital.

  The terms “foreign affiliate” and “exempt surplus” shall have the meaning which they have under the Income Tax Act of Canada.

• 2 In the case of a resident of Croatia, double taxation shall be avoided as follows:

  • (a) where a resident of Croatia derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in Canada, Croatia shall allow:

    • (i) as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in Canada;

    • (ii) as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in Canada.

    Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in Canada.

  • (b) Where in accordance with any provision of the Agreement income derived or capital owned by a resident of Croatia is exempt from tax in Croatia, Croatia may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.

• 3 For the purposes of this Article, profits, income or gains of a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Agreement shall be deemed to arise from sources in that other State.

VI. Special Provisions

Article 24
Non-Discrimination

• 1 Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

• 2 The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities.

• 3 Nothing in this Article shall be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

• 4 Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises which are residents of the first-mentioned State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of a third State, are or may be subjected.

Article 25
Mutual Agreement Procedure

• 1 Where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of this Agreement, that person may, irrespective of the remedies provided by the domestic law of those States, address to the competent authority of the Contracting State of which that person is a resident an application in writing stating the grounds for claiming the revision of such taxation. To be admissible, the said application must be submitted within two years from the first notification of the action resulting in taxation not in accordance with the provisions of the Agreement.

• 2 The competent authority referred to in paragraph 1 shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Agreement.

• 3 The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement.

• 4 The competent authorities of the Contracting States may consult together for the elimination of double taxation in cases not provided for in the Agreement and may communicate with each other directly for the purpose of applying the Agreement.

Article 26
Exchange of Information

• 1 The competent authorities of the Contracting States shall exchange such information as is relevant for carrying out the provisions of this Agreement or of the domestic laws in the Contracting States concerning taxes covered by the Agreement insofar as the taxation thereunder is not contrary to the Agreement. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to taxes. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

• 2 In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

  • (a) to carry out administrative measures at variance with the laws and the administrative practice of that or of the other Contracting State;

  • (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

  • (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

• 3 If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall endeavour to obtain the information to which the request relates in the same way as if its own taxation were involved notwithstanding the fact that the other State does not, at that time, need such information.

Article 27
Members of Diplomatic Missions and Consular Posts

Nothing in this Agreement shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.

Article 28
Miscellaneous Rules

• 1 The provisions of this Agreement shall not be construed to restrict in any manner any exemption, allowance, credit or other deduction accorded by the laws of a Contracting State in the determination of the tax imposed by that State.

• 2 Nothing in the Agreement shall be construed as preventing a Contracting State from imposing a tax on amounts included in the income of a resident of that State with respect to a partnership, trust, or controlled foreign affiliate, in which that resident has an interest.

• 3 The Agreement shall not apply to any company, trust or partnership that is a resident of a Contracting State and is beneficially owned or controlled directly or indirectly by one or more persons who are not residents of that State, if the amount of the tax imposed on the income or capital of the company, trust or partnership by that State is substantially lower than the amount that would be imposed by that State if all of the shares of the capital stock of the company or all of the interests in the trust or partnership, as the case may be, were beneficially owned by one or more individuals who were residents of that State.

• 4 With respect to the application, at any time, of other conventions or agreements to which the Contracting States are parties at that time, the Contracting States shall not have more rights than they would have had otherwise if this Agreement had been concluded before January 1, 1995.

• 5 Notwithstanding the provisions of paragraph 2 of Article 10 and of paragraph 2 of Article 11, dividends and interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in the first-mentioned State and according to the laws of that State, where such dividends or interest

  • (a) are received by a company or other entity that is controlled by one or more persons who are not residents of the other Contracting State; and

  • (b) are not subject to tax in that other State under the ordinary rules of its tax law.

VII. Final Provisions

Article 29
Entry into Force

Each of the Contracting States shall notify the other through diplomatic channels the completion of the procedures required by law for the entering into force of this Agreement. The Agreement shall enter into force on the date of the later of these notifications and its provisions shall thereupon have effect

• (a) in respect of tax withheld at the source on amounts paid or credited to non-residents, on or after the first day of January in the calendar year next following that in which the Agreement enters into force, and

• (b) in respect of other taxes, for taxation years beginning on or after the first day of January in the calendar year next following that in which the Agreement enters into force.

Article 30
Termination

This Agreement shall continue in effect indefinitely but either Contracting State may, on or before June 30 of any calendar year after the year of the entry into force, give to the other Contracting State a notice of termination in writing through diplomatic channels; in such event, the Agreement shall cease to have effect

• (a) in respect of tax withheld at the source on amounts paid or credited to non-residents, on or after the first day of January in the calendar year next following that in which the notice of termination is given, and

• (b) in respect of other taxes, for taxation years beginning on or after the first day of January in the calendar year next following that in which the notice of termination is given.

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Agreement.

DONE in duplicate at Ottawa, this 9th day of December 1997, in the English, French and Croatian languages, each version being equally authentic.

Protocol

At the moment of signing the Agreement between the Government of Canada and the Government of the Republic of Croatia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, the undersigned have agreed that the following provision shall form an integral part of the Agreement.

With reference to paragraph 1 of Article 4, it is understood that for purposes of the application of the Agreement to:

• (a) income taxes, the term “liable to tax” refers to liability to taxes on income and not to taxes on capital; and

• (b) capital taxes, the term “liable to tax” refers to liability to taxes on capital and not to taxes on income.

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Protocol.

DONE in duplicate at Ottawa, this 9th day of December 1997, in the English, French and Croatian languages, each version being equally authentic.