Canada: Proposed legislative amendments to foreign affiliate dumping rules

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Canada: Proposed legislative amendments to foreign affiliate dumping rules

wong-sabrina.jpg

dezfuli-atbin.jpg

Sabrina Wong and Atbin Dezfuli, Blake Cassels & Graydon

On August 16 2013, the government of Canada introduced draft legislative proposals (August 16 proposals) to amend its foreign affiliate (FA) dumping rules. The measures may be introduced into Parliament as early as autumn 2013.

The FA dumping rules generally apply where a corporation resident in Canada (CRIC) controlled by a non-resident corporation (parent) makes an investment in a corporation that is or becomes an FA of the CRIC. Where CRIC gives non-share consideration for acquiring the investment, a deemed dividend to its parent can be triggered that will be subject to Canadian withholding tax, except to the extent it reduces the CRIC's paid-up capital (PUC offset rule). Where the CRIC gives its shares as consideration, the PUC of such shares are deemed to be nil.

The August 16 proposals contain changes to the FA dumping rules generally of a relieving nature, including:

  • Limiting the application of the FA dumping rules where a CRIC makes an investment in an FA before CRIC becomes controlled by the parent;

  • Making the application of the PUC offset rule completely automatic and significantly amending the scope of the dividend substitution election (the QSC election) that allows other Canadian members of the corporate group to be treated as having paid the dividend;

  • Extending the application of the rule that reinstates previously reduced PUC in certain circumstances (the PUC reinstatement rule), including expanding the types of FA investments to which the rule could apply; and

  • Broadening the rules which except certain amalgamations of taxable Canadian corporations from the FA dumping rules.

However, the August 16 proposals also include amendments aimed at preventing taxpayers from using certain relieving provisions to avoid the application of the FA dumping rules.

The impact of the rules and the proposed changes should be carefully considered by any foreign investor planning an acquisition of, or investment in, any Canadian company with foreign operations.

Sabrina Wong (sabrina.wong@blakes.com) and Atbin Dezfuli (atbin.dezfuli@blakes.com)

Blake, Cassels & Graydon

Tel: +1 416 863 2400 and Fax: +1 416 863 2653

Website:www.blakes.com

more across site & shared bottom lb ros

More from across our site

Heads of tax need to push their teams forward as strategic business advisers to add value across the organisation, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Australia’s conservative opposition will repeal controversial tax agent reporting rules if elected in the country’s May general election
Shapley would be the fourth person to hold the job this year; in other news, UK tax advisory firm MHA raised fewer funds than expected from its London IPO
The US needs to be involved in pillar one for there to be more international acceptance of the project, Michael Masciangelo says
The UK regulator is investigating EY’s auditing of the national postal service as it relates to the high-profile Horizon scandal, which saw hundreds wrongfully convicted
Gift this article