CRA indicates that a non-resident corporation could be a foreign affiliate for s. 233.4 reporting purposes of only the lowest-tier corporation in a Canadian corporate group

Eight resident individuals together held all the shares of Canco, with percentages ranging from 10.03% to 24%, through their respective Canadian holding companies (in the case of seven of them) and directly (in the case of the eighth.) Canco, in turn, wholly owned a non-resident corporation, Nrco1, which wholly owned Nrco2 and Nrco3. The three Nrcos were foreign affiliates (FAs) and controlled foreign affiliates (CFAs) of each of the individuals, the seven holding companies, and Canco, under the definitions in ss. 95(1) and (4).

Regarding whether those holding corporations and individuals had reporting obligations under s. 233.4(4) in respect of the Nrcos, CRA noted that, under the s. 95(4) equity percentage definition as modified for s. 233.4 purposes by s. 233.4(2)(a), for purposes of s. 233.4, a non-resident corporation could generally only be an FA or CFA of a taxpayer resident in Canada to the extent that the taxpayer directly owned shares in the non-resident corporation, or any other non-resident corporation that directly or indirectly owned shares in the non-resident corporation. As indicated in the Explanatory Notes, a non-resident corporation could be a foreign affiliate of only the lowest-tier corporation in a group of Canadian corporations under common control.

Here, the Nrcos could be FAs only of Canco, and not of the individuals and holding companies, for s. 233.4 purposes, so that the latter had no reporting requirements under s. 233.4(4).

Neal Armstrong. Summary of 30 January 2025 External T.I. 2024-1036931E5 under s. 233.4(2)(a).