2012 Budget Implementation Bill – Foreign Affiliate Dumping And Upstream Shareholder Loan Update

On October 15, 2012, the Minister of Finance introduced a Notice of Ways and Means Motion (the Notice) to implement the "foreign affiliate (FA) dumping" rules. These new rules were first proposed in the March 2012 Budget (the Budget Proposals); detailed draft legislation was released August 14, 2012 for public consultation (the August 14 Proposals). The Notice received first reading in the House of Commons on October 18, 2012, as Bill C-45.

Broadly speaking, the FA dumping rules were introduced to prevent foreign multinational corporations from achieving tax advantages by causing their Canadian subsidiaries to hold investments in foreign affiliates (FAs). The specific tax advantages targeted by the government include not only the deduction of interest on debt incurred to acquire FAs, but also the ability to defer or avoid completely Canadian withholding tax (WHT) applicable to an upstream cross-border dividend or a transaction that results in a similar outcome. FAs