CANADA Law and Practice Contributed by: Marc-André Godard, Pierre Allard, Isabelle Gagnon and Mehrez Houacine, BCF Business Law LLP
Budget 2025 confirms the government’s intention to proceed with proposed amendments introducing a new “notice of non-compliance” regime that would grant the CRA broad discretionary powers to compel information, suspend normal reassessment periods for all issues and non-arm’s length parties, and impose daily penalties for non-compliance. If enacted, these measures would significantly strengthen the CRA’s audit capabilities while limiting judicial oversight and a taxpayer’s recourse in case of failure to comply with a requirement or notice to provide information, docu - ments, or assistance during an audit. 9. BEPS 9.1 Adoption of BEPS Recommendations Canada has implemented the BEPS recommended changes, as follows. Action 1: “Address the Tax Challenges of the Digital Economy” In October 2021, a statement of the OECD/G20 Inclu - sive Framework on BEPS on a two-pillar solution to further this action was proposed and accepted by more than 130 countries, including Canada. Pillar One is focused on nexus and profit allocation, applying to certain multinational enterprises (MNEs) that have consolidated revenues of more than EUR20 billion and profitability margins exceeding 10%. This pillar indicates that, whether or not an MNE has a physi - cal presence in a country where it earns revenues, a portion of its profits is to be reallocated from the MNE’s home country to the countries where the MNE earns profits. Canada has a strong preference for the multilateral approach, which has yet to be adopted by OECD members, and initially released draft legislation implementing a Digital Services Tax (DST). In 2025, Canada decided to repeal its previous DST and its regulations, as part of broader trade negotiations with the United States and in anticipation of a multilateral agreement on digital taxation. Canada has stated that taxpayers that had previously made DST payments would be refunded. Pillar Two is focused on a global minimum corporate tax rate of 15% on profits for MNEs with revenues of more than EUR750 million. Canada has enacted new
legislation to implement Pillar Two in its legislation, imposing a global minimum corporate tax rate of 15% on profits for MNEs with revenues above EUR750 mil - lion. The new Global Minimum Tax Act (GMTA) legis - lates an income inclusion rule and a qualified domestic minimum top-up tax, and applies to the fiscal years of MNEs beginning on or after 31 December 2023. Draft legislation was released to introduce an undertaxed profits rule (UTPR) for fiscal years commencing on or after 31 December 2024. Following discussions within the OECD/G20 Inclu - sive Framework, Canada stated that there is a shared understanding that a “side-by-side” Pillar 2 system exempting US-parented groups from certain Pillar 2 rules to the extent they are subject to US minimum tax rules could preserve progress in addressing base erosion and profit shifting while enhancing stability and certainty in the international tax system. This understanding supports continued multilateral co- operation and further dialogue on digital taxation and tax sovereignty. In light of these changes, it is unclear whether Canada will proceed with its draft legisla - tion to implement the UTPR component of its GMTA or otherwise delay its proposed effective date of 31 December 2024, although Canada confirmed its inten - • Action 2: “Neutralise the effects of hybrid mis - match arrangements” – Canada has implemented the recommendations made by the OECD, with appropriate adaptations to the Canadian income tax context in respect of deduction/non-inclusion mismatches arising in respect of certain payments and instruments. In January 2026, Canada released proposed amendments implementing most of the remaining recommendations of BEPS Action 2 to address hybrid mismatches arising from the hybridity of the entities involved. These proposed amendments are expected to become effective on 1 July 2026. • Action 3: “Strengthen CFC Rules” – Canada has adopted controlled foreign corporation (CFC) rules and applies a rather wide definition of CFC as well as legal and economic control tests to define a CFC. tion to proceed therewith. Actions 2–10 and 12–15
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