Reg. 5907(2.03) is a problem for offshore metal streams transactions

Where the earnings of a foreign affiliate are computed for surplus purposes on Canadian principles, new Reg. 5907(2.03) now requires that all available deductions be claimed.  This is a problem for offshore metal streams transactions.  In order to avoid local taxation on a deposit received under a long-term contract for the sale of the metal to be produced at a mine, a foreign affiliate in, say, the Caymans would be interposed, so that it rather than the local mining foreign affiliate receives the  deposit.  The Caymans affiliate now is required to claim the s. 20(1)(m) reserve respecting the deposit, so that it does not have exempt earnings to be distributed to Canco to be reinvested in the local mining project.

Neal Armstrong.  Summary of Michael W. Colborne, "Regulation 5907(2.03) and Offshore Metal Streams", Resource Sector Taxation, Volume IX, No. 2, 2013, p. 647  under Reg. 5907(2.03).