Canada: Department of Finance Consults on Draft Tax Legislation

Par Robert Robillard - 3 septembre 2014

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New draft legislative proposals were issued by Finance among which:

« International Taxation

◾Better circumscribing an existing exception from the “investment business” definition in the foreign accrual property income regime by introducing additional conditions for the application of the exception.
◾Adjusting Canada’s foreign accrual property income rules in order to address offshore insurance swap transactions and ensure that income derived directly or indirectly from the insurance of Canadian risks is taxed appropriately.
◾Addressing back-to-back loan arrangements involving an intermediary by adding a specific anti-avoidance rule in respect of withholding tax on interest payments, and modifying an existing anti-avoidance rule in the thin capitalization rules. »

Also:

« The draft legislative proposals also include other income tax and sales tax measures that were not included in Economic Action Plan 2014:

◾Modernizing the life insurance policy exemption test.
◾Amending the foreign affiliate dumping rules to ensure the rules apply in appropriate circumstances and, where applicable, provide appropriate results.
◾Amending the definition “non-qualifying country” in the foreign affiliate rules to:

◾exclude from this definition those countries or other jurisdictions for which the Convention on Mutual Administrative Assistance in Tax Matters is in force and effect; and
◾avoid unintended tax consequences with respect to the British Overseas Territory of the British Virgin Islands, which is now a jurisdiction that has a comprehensive tax information exchange agreement with Canada »

The detailed proposals are available here.

Also of note, Finance stated:

« After engaging in consultations on a proposed anti-treaty shopping measure, the Government will instead await further work by the Organisation for Economic Co-operation and Development and the Group of 20 (G-20) in relation to their Base Erosion and Profit Shifting initiative. »

Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard « at » localhost
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