Tax Memo: Foreign Affiliates: Draft Regulations Released

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On December 18, 2009, the Honourable Jim Flaherty, Minister of Finance, released a package of legislative proposals relating to the taxation of Canadian multinational corporations with foreign affiliates. The package includes:

• Amendments to the Income Tax Regulations (the focus of the package)
• Consequential changes to the Income Tax Act (the Act)
• Changes to the Budget and Economic Statement Implementation Act, 2007 (Bill C-28) relating to the elections available to effect retroactive application of certain of the foreign affiliate provisions included in Bill C-28

The Department of Finance will accept comments relating to the draft legislation and explanatory notes until February 15, 2010, and has indicated it will proceed with legislation to implement the proposed amendments at "an early opportunity."

Notably, the explanatory notes to these legislative proposals also indicate that any outstanding measures from the foreign affiliate proposals issued in February 2004 not dealt with in this release will be the subject of a separate package of proposals, to be issued in the "near future." It is hoped that this will include the long-awaited changes to the foreign affiliate reorganization provisions.

Read the Tax Memo for a summary of the proposed changes.