The draft legislation has introduced on August 16, 2013, to make revisions to the foreign affiliate dumping (FAD) rules that were first declared as part of the 2012 federal budget and enacted on December 14, 2012 according to Bill C-45 and it would generally be applicable retrospectively to March 29, 2012. The draft legislation highlights the following focus areas:
• the reduction of barriers to corporate acquisitions by limiting the application of the rules where a corporation resident in Canada (CRIC) makes an investment in a foreign affiliate before that corporation becomes controlled by a nonresident corporation. This would effectively be achieved by introducing a “safe harbor” to preclude the application of the rules to investments made when no nonresident corporation holds 25% or more of the CRIC’s votes or value.
• Extension of the rule reinstating a CRIC’s paid-up capital, where the CRIC distributes to its nonresident shareholder amounts it has received as interest on or from the repayment or sale of certain debt obligations owed to the CRIC by the foreign affiliate.
• Preparing the application of the “paid-up capital offset” rule automatic, easing compliance rules.
• Prevention of taxpayers from using certain relieving provisions within the FAD rules in a manner that is inconsistent with the underlying policy by, for example, undertaking transactions to take advantage of both the corporate reorganization provision and the exception from the rules for certain debts.
