This content is from: Canada

Canada: Filing deadline approaching for Canadian foreign affiliate dumping rules

Bryan Bailey
Josh Jones
The Canadian foreign affiliate dumping (FAD) rules were introduced in March 2012 to prevent foreign multinational corporations from achieving certain tax advantages by causing a Canadian subsidiary to hold investments in foreign (non-Canadian) affiliates (FA).

Generally, the FAD rules apply where a corporation resident in Canada (CRIC) that is controlled by a non-resident corporation (the parent) makes an 'investment' in an FA. An investment is defined broadly to include, among other things, an acquisition of shares, contribution of capital, and certain acquisitions of debt. Where the FAD rules apply, the CRIC may be deemed to have paid a dividend to its parent generally equal to the amount of the investment, unless certain provisions apply to reduce the paid-up capital (PUC) of the CRIC's shares by the amount of the investment (PUC offset rule). Any such deemed dividend would be subject to Canadian withholding tax, even though no amount may be extracted from Canada.

For a deemed dividend to be reduced by the PUC offset rule, the CRIC is required to file a form with the Canada Revenue Agency (CRA) on or before the CRIC's filing due date for its taxation year that includes the time in which the deemed dividend would otherwise arise. The FAD rules were amended in December 2014 to add this requirement, but it applies to all transactions occurring after the introduction of the rules in March 2012. Grandfathering provisions generally extend the filing deadline to the later of December 16 2015 and the CRIC's filing due date for its taxation year that includes December 16 2014.

If the form is not filed on time, the CRIC will be deemed to have paid a dividend to the parent on the filing due date (although, in certain circumstances, any resulting Canadian withholding tax may be refunded). As there is currently no prescribed form, the CRA accepts that a letter containing certain specific information will satisfy the form requirement.

As the filing deadline approaches, foreign multinational corporations should consider the application of the FAD rules to any investments made by a Canadian subsidiary in an FA during or after March 2012 to determine whether the filing of the form is required to avoid the application of Canadian withholding tax.

Bryan Bailey ( and Josh Jones (, Toronto
Blake, Cassels & Graydon

Tel: +1 416 863 2297 and +1 416 863 4278

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