|
Highlights
DUAL CONSOLIDATED LOSS RULES
Department of Treasury Attacks "Double Dips" Too?
Jamie Mitchell
The U.S. dual consolidated loss
rules (the "DCL rules") were first adopted in 1986. The DCL rules initially
operated to restrict the ability of a dual-resident corporation to claim a loss
in both the U.S. and the foreign jurisdiction if the foreign jurisdiction
allowed consolidated tax filing. The DCL rules deny U.S. recognition of the loss
unless the corporation elects to claim the loss in the U.S. only. Over time, the DCL rules have
been extended to foreign branch operations of U.S. domestic corporations and
interests in hybrid entities owned by U.S. domestic corporations. An unlimited
liability company formed in Canada will be considered a hybrid entity for these
purposes. The final DCL regulations (the "2007 DCL rules") were announced
earlier this year by the U.S. Treasury and the IRS. Several significant changes
result from the updated rules. Jamie Mitchell examines these regulations and how
they will have a direct effect on the way in which Canadian operations are
financed by a U.S. parent corporation. Further complicating the structuring
question are the new rules dealing with hybrids contained in the Fifth Protocol
to the Canada–United States tax treaty released on September 21, 2007.
Consequently, going forward, U.S. parents financing Canadian subsidiaries will
need to take into account both the 2007 DCL rules and the possibility of hybrid
recharacterization as a result of the Protocol. Certain existing structures
involving hybrid components will be adversely effected as a consequence of these
changes. There may exist some alternative structures that can be considered as
possible replacements for existing arrangements. The elimination under the
Protocol of withholding tax on interest is yet another factor to be considered
in arriving at the optimal financing structure.
TREATY SHOPPING
A Canadian Case Study and the International
Scene
Sophie Chatel *
With the globalization of markets
and the increasing mobility of capital, tax administrations around the world are
responding to a sophisticated array of tax
planning structures designed to "jump" international borders and "mine" benefits
set forth in bilateral tax treaties. Sophie Chatel discusses treaty shopping,
present and future, from the perspective of tax administration. In particular,
the author discusses The Queen v. MIL (Investments) S.A. decision and
possible ramifications resulting from the Canada Revenue Agency's decision not
to seek leave to appeal the decision of the Federal Court of Appeal to the
Supreme Court of Canada. The author identifies a range of options, both domestic
and international, which may possibly be considered to address the issue of
treaty shopping.
| |
Board
Robert Raizenne
Editor-in-Chief
Osler, Hoskin & Harcourt LLP
Gabriel J. Hayos
KPMG LLP
Edward A. Heakes
Macleod Dixon
Michael J. Maikawa
PricewaterhouseCoopers LLP
C. Andrew McAskile
PricewaterhouseCoopers LLP
Joel A. Nitikman
Fraser Milner Casgrain LLP
Michael J. O’Keefe
Thorsteinssons
James M. Parks
Cassels Brock & Blackwell LLP
Shawn D. Porter
Deloitte & Touche LLP |