handbook-tb

Taxation of non-residents’ capital gainsparties in the transfers of financial claims, that is to say, lessees, borrowersand companies issuing shares, often receive notice of the transfersunder either legal or contractual requirements. It may be possibleto enlist such parties in reporting taxable transfers, even if they are notparty to the transfer.However, such a requirement could have limits if third-partycontractual rights to notice vary widely in the market. 45 Moreover,should both the purchaser/transferee and third parties be required (inthe sense of having an obligation backed up by penalties) to report atransaction? Third-party reporting requirements often will call uponmarket participants to share information which they would not otherwiseshare. 46 Finally, third-party reporting will not by itself solve thecollection problem. 47 Therefore, where it is possible to rely on transferee/buyerreporting, third-party reporting should arguably not beused, unless such reporting (for example, to a regulatory authority)would take place in any case.4.2 CollectionFrom a collection and revenue protection perspective, transfereewithholding is clearly a more powerful tool than transferee reporting.Canada, India and the United States each require the transferee in ataxable direct (and, in the case of Canada and India, indirect) transferto withhold from gross proceeds paid to the transferor, regardless ofwhether the transferee is domestic or foreign. 48 Each also makes the45Nonetheless, a government requirement for third-party reporting mayinduce changes in contractual terms, such that third parties will demandcontractually (and receive) notice of transfers.46For example, shareholders may have reasons to withhold informationabout a share sale from the managers of the company sold, because thesemanagers may soon be fired. To enlist the assistance of these same managersin notifying tax authorities of the sale could be awkward.47 See discussion below regarding objections to imposing a substantiveliability on third parties (other than the seller and buyer).48The United States rule, Internal Revenue Code section 1445, requireswithholding of 10 per cent from gross proceeds. IRC § 1445 (2013); theCanadian rule, Income Tax Act section 116, requires a significantly higher(25 per cent) rate of withholding, but allows the transferor to prepay or post129