Intra-group foreign debt in the Canadian resource industry

Bruce Sinclair and Kirsten Kjellander believe the proposals have broad implications for taxpayers

The expression upstream loan refers to the most common situation that these proposed rules are intended to address where a Canadian corporation receives an upstream loan from a foreign subsidiary. However, the rules will apply to a broad range of debts owing to foreign affiliates of a Canadian corporation by persons not dealing at arm's length with the Canadian corporation.

Canada has a mixed system for the taxation of business income earned by a foreign affiliate of a Canadian corporation. Income earned by a foreign affiliate from a business carried on in countries with which Canada has concluded an income tax treaty or a tax information exchange agreement – referred to as exempt surplus – is subject to an exemption system and dividends paid can be received tax-free by the Canadian corporation. Business income earned in other...