Tax memo: Long-awaited foreign affiliate amendments released

Download

On August 19, 2011, the Honourable Jim Flaherty, Minister of Finance, released a package of legislative proposals relating to the taxation of Canadian multinational corporations with foreign affiliates.

Included in this long-awaited package are significant revisions to the proposals previously released on February 27, 2004 and subsequently addressed in various comfort letters relating to:

• the sale of shares of foreign affiliates;
• the reorganization of foreign affiliates; and
• distributions from foreign affiliates.

Also in the 2011 Proposals are previously unannounced proposals relating to:

• upstream loans from foreign affiliates;
• a specific anti-avoidance rule relating to the creation of exempt surplus; and
• the streaming of capital losses and income losses for purposes of calculating the foreign accrual property income (FAPI) of a foreign affiliate.

In addition, various other technical amendments are in the package. The Department of Finance has confirmed that these proposals are the final tranche of the updated 2004 Proposals.

The Department of Finance will accept comments relating to the draft legislation and Explanatory Notes until October 19, 2011, and has indicated it will proceed with legislation to implement the amendments at “an early opportunity.”

Learn more in this Tax memo.