Intra-group foreign debt in the Canadian resource industry
01 April 2012
The Department of Finance recently released proposed amendments to Canada’s foreign affiliate regime including rules dealing with so-called upstream loans. Bruce Sinclair and Kirsten Kjellander of Blake, Cassels & Graydon explore implications of these proposals for multinational enterprises involved in the natural 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...
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