Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘Canada’

Canada: Draft legislation

Canada’s Dept of Finance released draft legislative proposals, with comments due by 7 October 2019.

Canada has complex rules re: foreign affiliate dumping, etc. making it more complex to place subsidiaries under a Canadian holding company without proper planning for Paid Up Capital and other items, and these proposals appear to tighten those rules.

Cross border securities lending arrangements are included re: additional rules.

Tax professionals with Canadian operations should monitor this legislation accordingly.

EY’s Global Tax Alert provides additional details therein.

https://www.ey.com/Publication/vwLUAssets/Finance_Canada_releases_draft_legislation_for_2019_budget_measures/$FILE/2019G_003652-19Gbl_Canada%20-%20Draft%20legislation%20for%202019%20budget%20measures.pdf

Canada targets cash pools

As MNE’s (anxiously) await the final Treas. Reg. Section 385 final regulations (for which the House and Senate seem unable to slow down Treasury’s intent) and its potential impact on cash pools and foreign-to-foreign transactions, Canada has proposed rules providing for deemed dividend and withholding tax treatment for certain cash pool arrangements, notwithstanding notional pool arrangements.

The perceived abuse of cash pools, albeit physical or notional, has trumped the basic business tenets and rationale of international business.  As a result, significant complications have resulted in additional costs, compliance and regulatory oversight that stifles basic business transactions.

MNE’s with physical cash pools may have, or will need to, consider notional vs. cash pools as countries look at such opportunities with its sovereign right for revenues and source taxation.  Notional cash pools are no longer safe, as a result.

These non-intuitive rules should introduce discussions between tax administrations and MNE’s located in their jurisdiction to truly understand business dynamics prior to enacting draft/final rules affecting such instruments.  Until that time, MNE’s will have to consider restructuring that further begets questions of complexity and planning arrangements.

Details of Canada’s proposal are provided in EY’s Global Tax Alert provided as reference.

http://www.ey.com/Publication/vwLUAssets/Canada’s_proposed_legislative_amendments_may_tax_cross-border_notional_cash_pooling_arrangements/$FILE/2016G_03209-161Gbl_CA%20proposed%20leg%20amdmts%20may%20tax%20cross%20border%20notional%20cash%20pooling%20argmts.pdf

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