Ottawa, August 16, 2013

Archived - Government Proposes Changes to Foreign Affiliate Dumping Rules

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The Department of Finance today released for public comment draft legislative proposals that would change the foreign affiliate dumping rules in the Income Tax Act. Those rules effectively restrict the ability of foreign-based multinational corporations to transfer, or “dump,” foreign affiliates into their Canadian subsidiaries, while preserving the ability of those subsidiaries to undertake legitimate expansions of their Canadian businesses.

The legislative proposals take into account input from stakeholders and would:

  • Reduce impediments to corporate acquisitions by limiting the application of the rules where a corporation resident in Canada (CRIC) makes an investment in a foreign affiliate before that corporation becomes controlled by a non-resident corporation.
  • Extend the rule reinstating a CRIC’s paid-up capital, where the CRIC distributes to its non-resident shareholder amounts it has received as interest on or from the repayment or sale of certain debt obligations owed to the CRIC by the foreign affiliate.
  • Ease compliance requirements by making the application of the “paid-up capital offset” rule automatic.
  • Facilitate certain financing arrangements by amending the computation of the CRIC’s debt for the purpose of determining the CRIC’s debt-to-equity ratio under the thin capitalization rules.

In addition, the proposals include amendments to prevent taxpayers from using certain relieving provisions within the foreign affiliate dumping rules in a manner that is inconsistent with the underlying policy by, for example, undertaking transactions to take advantage of both the corporate reorganization provision and the exception from the rules for certain debts.

A more detailed description of the proposals is provided in the explanatory notes included with the draft legislation. References to “Announcement Date” in the draft legislation and explanatory notes refer to today’s date.

Interested parties are invited to provide comments on the draft legislation by October 15, 2013 to:

Tax Policy Branch
Department of Finance
140 O’Connor Street
Ottawa, Ontario
K1A 0G5

For further information, media may contact:

Jack Aubry
Media Relations
Department of Finance

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