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Canada

23 December 2016

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Canada Budget Implementation Act, 2016 No. 2 Receives Royal Assent, including CbC Reporting

The Canadian Budget Implementation Act, 2016 No. 2 received Royal Assent on 15 December 2016. The Act includes measures of the budget not already passed (previous coverage), including several measures on anti-avoidance and BEPS.

CbC Reporting

Canada's implementation of Country-by-Country (CbC) reporting requirements is based on BEPS Action 13. The main CbC reporting provisions of the Act include:

  • The reporting requirements apply for fiscal years beginning after 2015 for MNE groups meeting a EUR 750 million consolidated group revenue threshold in the previous year;
  • The report must be filed in the prescribed manner by:
    • The ultimate parent entity of the MNE group, if it is resident in Canada in the reporting fiscal year; or
    • A constituent entity of the MNE group — which is not the ultimate parent entity of the MNE group — with respect to the reporting fiscal year of the MNE group, if the constituent entity is resident in Canada in the reporting fiscal year, and one of the following conditions applies:
      • The ultimate parent entity of the MNE group is not obligated to file a country-by-country report in its jurisdiction of residence;
      • The jurisdiction of residence of the ultimate parent entity of the MNE group does not have a qualifying competent authority agreement in effect to which Canada is a party on or before the time specified for filing the country-by-country report for the reporting fiscal year; or
      • There has been a systemic failure of the jurisdiction of residence of the ultimate parent entity and the constituent entity has been notified of the systemic failure;
  • If more than one constituent entity of the MNE group would be required to file a CbC report as above, one of the constituent entities may be designated — by the deadline to file — to file the report on behalf of all such constituent entities;
  • A constituent entity that is not the ultimate parent will not be required to file if a surrogate parent entity of the MNE group files a CbC report in its jurisdiction of residence by the deadline to file in Canada, and the jurisdiction of residence of the surrogate parent entity:
    • Requires filing of country-by-country reports;
    • Has a qualifying competent authority agreement in effect to which Canada is a party on or before the deadline to file in Canada in respect of the reporting fiscal year;
    • Is not in a position of systemic failure; and
    • Has been notified by the surrogate parent entity that it is the surrogate parent entity;
  • The deadline for filing a CbC report is 12 months after the last day of the reporting fiscal year, or in the case of systemic failure, 30 days after the notification of systemic failure has been received by the constituent entity.

The Act does not include further details, such as the method of filing or notification requirements regarding the reporting entity.

Other Anti-Avoidance Measures

Other anti-avoidance measures include:

  • Introducing rules to prevent the avoidance of the shareholder loan rules using back-to-back arrangements;
  • Introducing rules so that any accrued foreign exchange gains on a foreign currency debt will be realized when the debt becomes a parked obligation;
  • Preventing the misuse of an exception in the anti-avoidance rules in the Income Tax Act for cross-border surplus-stripping transactions;
  • Amending the anti-avoidance rules in the Income Tax Act that prevent the multiplication of access to the small business deduction and the avoidance of the business limit and the taxable capital limit;
  • Ensuring that an exchange of shares of a mutual fund corporation or investment corporation that results in the investor switching between funds will be considered for tax purposes to be a disposition at fair market value;
  • Clarifying the application of anti-avoidance rules in the Income Tax Act for back-to-back loans to multiple intermediary structures and character substitution;
  • Introducing rules to prevent the avoidance of withholding tax on rents, royalties and similar payments using back-to-back arrangements;
  • Implementing the OECD Common Reporting Standard (CRS) for the automatic exchange of financial account information between tax authorities; and
  • Strengthening the test for determining whether two corporations, or a partnership and a corporation, can be considered closely related for GST/HST purposes.

Click the following link for the Budget Implementation Act, 2016, No. 2.

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