CANADA Law and Practice Contributed by: Marc-André Godard, Pierre Allard, Isabelle Gagnon and Mehrez Houacine, BCF Business Law LLP
• Action 4: “Limit base erosion via interest deduc - tions and other financial payments” – Effective 1 October 2023, Canada introduced new earnings- stripping rules that limit interest deductions by certain Canadian entities and branches of non-res - ident taxpayers to a proportion of their tax EBITDA, subject to certain transitory rules. • Action 5: “Counter harmful tax practices more effectively, taking into account transparency and substance” – Canada agreed to exchange infor - mation regarding cross-border rulings relating to preferential regimes, transfer pricing legislation, downward adjustment not directly reflected in the taxpayers’ accounts, permanent establishment determination, and related-party conduit rulings. • Action 6: “Prevent treaty abuse” – Canada announced that it would adopt the principal pur - pose test to address treaty abuse in 2017, accord - ing to the OECD’s minimum standard. The principal purpose test is an anti-abuse provision that seeks to deny treaty benefits where one of the main objectives of an arrangement or transaction is to obtain treaty benefits. • Action 7: “Preventing the artificial avoidance of permanent establishment status” – Canada has chosen not to adopt the expanded definition of a permanent establishment in most of its tax trea - ties, to reflect the recommendations set out in this action. • Actions 8 to 10: “Transfer pricing” – Canada’s transfer pricing guidelines are consistent with those established by the OECD. • Action 12: “Disclosure of aggressive tax planning” – Canada has amended its legislation to widen the range of transactions that are to be reported. For example, this requirement extends to reporting uncertain tax treatments for specified corporations. The reporting requirements for reportable transac - tions and notifiable transactions have been in effect since 22 June 2023 and apply to transactions that span that date. The reporting requirement for uncertain tax treatments applies to taxation years beginning after 2022, with penalties only applying for taxation years beginning on or after 22 June 2023. • Action 13: “Re-examine transfer pricing documen - tation” – Canada implemented country-by-country reporting as of 1 January 2016. This reporting
applies to multinational corporations whose total annual consolidated group revenue is EUR750 mil - lion or more. Such corporations will be required to file a country-by-country report with the CRA within one year of the end of the fiscal year to which the report relates. • Action 14: “Dispute resolution” – Canada has reviewed stage two of Action 14 and has made recommendations. Canada opted for the manda - tory binding agreement as proposed by BEPS Action 14. • Action 15: “Develop a multilateral instrument” – Canada ratified the MLI in 2019. The MLI applies to some of Canada’s tax treaties, effective as of 1 January 2020, for Canada’s treaty partners that have also ratified the MLI. Where Canada has not implemented specific legisla - tive changes concerning the above-mentioned BEPS Actions, it can generally be explained by the fact that it has introduced a series of domestic measures over the past decade to prevent perceived abuses also tar - geted by the BEPS Actions. 9.2 Government Policy and Objectives Approach Canada has been actively involved in the BEPS pro - ject deployed by the G20 and OECD, and continues to work with the international community to ensure a coherent and consistent response to BEPS. Canada has endorsed all the recommendations developed under the BEPS project. Canada and other G20 mem - bers believe that broad and consistent implementa - tion will be critical to the project’s effectiveness. While some BEPS Actions have already been implemented, Canada continues to analyse recommendations relat - ed to other aspects of BEPS. 9.3 International Tax International taxation has gained a high public profile in Canada, with the government taking active steps in the fight against aggressive international tax avoid - ance, protecting the Canadian tax base and enhanc - ing the overall fairness and transparency of Canada’s tax administration.
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