The foreign affiliate dumping rules do not accommodate significant commercial transactions

Observations of Ian Bradley on the foreign affiliate dumping rules include:

• Earn-outs or other deferred share issuances can be problematic as the subsequent share issuances will not generate cross-border paid-up capital to absorb a potential deemed dividend at the investment time
• A PUC grind under s. 212.3(2)(b) can apply to an unrelated party, e.g., where unrelated vendors receive share consideration from a CRIC (generally, a non-resident controlled Canadian corporation) for the sale of a non-resident corporation
• The s. 212.3(15)(a) rule, that control of a CRIC does not include control by an upper-tier parent, means that a transfer of the CRIC to that indirect parent can result in a second application of the FAD rules
• A partnership arguably acts as a blocker, so that Canadian holding companies that are members of a partnership holding a CRIC cannot qualify as qualifying substitute corporations
• PLOI elections (re accepting imputed interest on debts to exclude them from the FAD rules) are impracticable for cash pooling and other arrangements where intercompany balances are changing every day of the year

Neal Armstrong.  Summaries of Ian Bradley, "Living with the Foreign Affiliate Dumping Rules", Canadian Tax Journal (2013) 61:4, 1147-66 under s. 212.3(7), s. 212.3(2), s. 212.3(15)(a), s. 212.3(25)(b) and s. 212.3(11).