BEPS Cash Box Inconsistent With Canadian Tax Rules

The BEPS project's new transfer-pricing notion of "cash box" appears to be inconsistent both with commercial reality and with longstanding Canadian outbound international tax policy.

In 1976, Canada adopted the policy of facilitating management (reduction) of the foreign tax obligations of Canada's multinational enterprises (MNEs) via group financing and licensing arrangements, carving those obligations out of the FAPI system. The primary mechanism of this carve-out was and remains subparagraph 95(2)(a)(ii), which converts passive inter-FA interest or royalty payments out of the payer FA's ABI into the recipient FA's ABI. This system survived an indirect challenge in 2007, when the anti-double-dipping rule in section 18.2 was enacted (but repealed in 2009, before its effective date), and it was strongly endorsed by the 2008 governmentappointed Advisory Panel on Canada's System of International Taxation.