Tax Proposal Appears To Target Canadian Multinational Enterprises

On February 4, 2022, the Canadian federal government released for public comment a package of draft legislative proposals to implement a number of tax measures. The package included proposed amendments to the Income Tax Act (Canada) (the "Tax Act") that, if enacted, would limit the deduction of interest to 30% of "tax EBITDA"(the "30% EBITDA Rule"). Consistent with the Action 4 report under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, the 30% EBITDA Rule is intended to address concerns about base erosion arising from the deduction for income tax purposes of excessive interest and other financing costs, principally in the context of multinational enterprises ("MNEs") and cross-border investments. The 30% EBITDA Rule is complex, and this is especially the case since the 30% EBITDA Rule is intended to apply in conjunction with, and not replace, the myriad of existing rules that target the deductibility of interest expense for Canadian tax purposes.